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UNITED STATES COURT OF FEDERAL CLAIMS THE BOEING COMPANY, SUCCESSOR- ) IN-INTEREST TO ROCKWELL ) INTERNATIONAL CORPORATION, ) ) Plaintiff, ) ) v. ) ) THE UNITED STATES OF AMERICA, ) ) Defendant. )

No. 91-1362 C (Judge Lettow)

DEFENDANT'S SUPPLEMENTAL BRIEF IN OPPOSITION TO ROCKWELL'S MOTION FOR SUMMARY JUDGMENT AND IN SUPPORT OF DEFENDANT'S CROSS-MOTION FOR SUMMARY JUDGMENT

PETER D. KEISLER Assistant Attorney General DAVID M. COHEN Director DONALD E. KINNER Assistant Director JOHN A. KOLAR DONALD WILLIAMSON Trial Attorneys Commercial Litigation Branch Civil Division Department of Justice P.O. Box 261 Ben Franklin Station Washington, D.C. 20044 Tele: (202) 305-9301 Attorneys for Defendant

Dated: October 30, 2006

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TABLE OF CONTENTS Page

ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 I. The Government Is Entitled To Summary Judgement That It Did Not Breach The Award Fee Provisions Of Rockwell's Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 A. The Secretary's Action Of Transferring De Facto Mr. Twining's Authority Over Rockwell's Award Fees To DOE Officials In The Office Of Defense Programs Did Not Constitute A Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Supplemental Facts Regarding Headquarters' Involvement In The Award Fee Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1. 2. 3. C. The 89/1 Award Fee Determination Process . . . . . . . . . . . . . . . . . . . . . . 10 The 89/2 Award Fee Determination Process . . . . . . . . . . . . . . . . . . . . . . 22 DOE Did Not Breach The Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

B.

Rockwell Has Not Alleged That DOE Breached The Award Fee Provisions Of The Contract Other Than By Having The "Wrong Official" Determine The Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 The Albuquerque Operations Office Award Fee Handbook Was Not Part Of The Rockwell-DOE Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 DOE Did Not "Conceal" Headquarters' Involvement In Rockwell's Award Fee Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

D.

E.

II.

If DOE Breached, Rockwell Was Not Damaged, Or The Damages Are Less Than Rockwell Seeks In Its Motion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

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TABLE OF AUTHORITIES Page

None cited.

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UNITED STATES COURT OF FEDERAL CLAIMS THE BOEING COMPANY, SUCCESSOR- ) IN-INTEREST TO ROCKWELL ) INTERNATIONAL CORPORATION, ) ) Plaintiff, ) ) v. ) ) THE UNITED STATES OF AMERICA, ) ) Defendant. )

No. 91-1362 C (Judge Lettow)

DEFENDANT'S SUPPLEMENTAL BRIEF IN OPPOSITION TO ROCKWELL'S MOTION FOR SUMMARY JUDGMENT AND IN SUPPORT OF DEFENDANT'S CROSS-MOTION FOR SUMMARY JUDGMENT Pursuant to the Court's direction at the September 21, 2006 hearing, see Transcript ("Tr.") of hearing at 89, defendant the United States of America ("defendant" or "government") respectfully submits this supplemental brief in opposition to the summary judgment motion filed by plaintiff The Boeing Company, Successor-in-Interest to Rockwell International Corporation ("Rockwell"), and in support of the Cross-Motion for Summary Judgment filed by the government. ARGUMENT I. The Government Is Entitled To Summary Judgement That It Did Not Breach The Award Fee Provisions Of Rockwell's Contract A. The Secretary's Action Of Transferring De Facto Mr. Twining's Authority Over Rockwell's Award Fees To DOE Officials In The Office Of Defense Programs Did Not Constitute A Breach

During the September 21, 2006 hearing (Tr. at 88), the Court asked counsel for the parties to address in their supplemental submissions whether this case is appropriate for summary disposition. The government respectfully submits that this case is appropriate for -1-

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summary judgment in its favor because the undisputed facts demonstrate, and the language of the contract is clear, that the DOE Secretary was permitted to take the actions of which Rockwell complains. The Secretary of Energy acted properly within his statutory and regulatory authority1 to remove the substantive authority of the Manager of DOE's Albuquerque Operations Office, Mr. Bruce Twining, over Rocky Flats and Rockwell's award fee determination, and transfer that authority to other DOE officials he designated, i.e., to officials in the DOE Headquarters Office of Defense Programs (see below). This was not a breach because the contract's language expressly permitted anyone "acting as manager" of Albuquerque to decide Rockwell's award fee. The Secretary acted through the "Secretariat," consisting of himself, his Deputy Secretary W. Henson Moore, and his Under Secretary, John C. Tuck.2 The Secretary removed Mr. Twining's substantive authority over Rockwell effective June 6, 1989 in view of the fact that Mr. Twining and others in the Albuquerque Operations Office were potential subjects of the criminal investigation.3 The Secretary replaced Mr. Twining as the substantive decisionmaker over Rocky Flats and Rockwell de facto, without formally conferring the title of "Manager of Albuquerque" or "Award Fee Determination Official" ("AFDO") on others whom the Secretary decided should exercise that authority in place of Mr. Twining. There were two steps involved in that process.

The relevant statute, regulations, and delegation orders are cited in Defendant's Proposed Findings Of Uncontroverted Fact ("DPFUF"), filed July 27, 2006, nos. 1-12.
2

1

See DPFUF no. 20, and the supporting proof cited therein. See DPFUF nos. 19-29, and the supporting proof. -2-

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First, the Secretary terminated the reporting relationship of the Rocky Flats Office of DOE to the Albuquerque Operations Office with respect to decisionmaking over Rocky Flats, and directed that that office would report directly to the Office of the Under Secretary of Energy, John C. Tuck. The Secretary determined that Mr. Twining, the Manager of Albquerque, should no longer exercise managerial responsibility for Rocky Flats, but that management of Rocky Flats should be exercised by an on-site manager reporting to the Under Secretary. Later it was decided that the on-site Rocky Flats manager would report to DOE's Assistant Secretary for Defense Programs rather than directly to the Under Secretary­see below. In the words of Mr. Twining (see deposition testimony quoted below), the Secretary "rewired" the organization chart so that the line of authority ran directly from the Rocky Flats manager to the Under Secretary, instead of to him in his capacity as Manager of Albuquerque. The Under Secretary, later succeeded by the Office of Defense Programs, thereafter functioned de facto as Manager of Albuquerque for purposes of Rocky Flats and Rockwell. Such a decision was properly within the Secretary of Energy's authority to "establish, alter, consolidate or discontinue such organizational units or components with the Department as he may deem to be necessary or appropriate." Def. Ex. 1, 42 U.S.C. § 7253(a).4 Second, the Secretary replaced the then current DOE on-site manager of Rocky Flats, Rush O. Inlow, with a new manager, Edward S. Goldberg, whom he handpicked. This was properly within the Secretary's authority to "appoint . . . such officers and employees, including attorneys, as may be necessary to carry out such functions." Def. Ex. 1, 42 U.S.C. § 7231(a).

And, under the contract, the officials duly designated by the Secretary to function in place of the Albuquerque Manager for the purpose of overseeing Rockwell were also permitted to decide Rockwell's award fees. -3-

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The Secretary took these actions in view of Mr. Twining's status as a "party" to the criminal investigation in order to bypass Mr. Twining as far as substantive decisionmaking about Rockwell was concerned. These actions are memorialized in several documents in the record. The memorandum issued by Under Secretary John Tuck on June 6, 1989, the day of the FBI/EPA raid, stated: Effective 9:00 a.m. MDT June 6, 1989, E.S. Goldberg is designated Acting Manager of the Rocky Flats Area Office. Mr. Goldberg will report to the Under Secretary of Energy, John C. Tuck, with regard to the operations of the Rocky Flats facility. This assignment is to continue through the current investigation period and until specifically reassigned by the Under Secretary. Mr. Goldberg will relieve the current Acting Area Manager without prejudice so that Mr. Rush Inlow can assist the Department of Justice in the evaluation of allegations concerning the Rocky Flats facility. Mr. Goldberg will assess plant status and conduct reviews and inspections to insure that the facility can be maintained operational during the current facility investigation. Mr. Goldberg shall determine what additional actions must be taken, working with the Department of Energy team under the direction of the Special Assistant to the Secretary, Mr. Leo P. Duffy. Mr. Goldberg will advise the Deputy Secretary, Henson Moore, or his designated onsite representative of his recommendations to insure continuity of facility safety. Def. Ex. 18. The memorandum provided that the Manager of Albuquerque Operations, even though divested of substantive authority over Rocky Flats, was to provide "continued support" to Mr. Goldberg. On June 9, 1989, Mr. Tuck sent Mr. Goldberg another memorandum approving the interim organizational structure of the Rocky Flats Area Office. Mr. Twining was copied on this memorandum. Def. Ex. 20. On July 21, 1989, Under Secretary Tuck issued another memorandum to Mr. Goldberg and Mr. Twining. It stated: -4-

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Effective immediately, the Area Manager, Rocky Flats Office, will report to the Assistant Secretary for Defense Programs. This action is a follow-up of the decision made June 6, 1989 when the Area Manager was temporarily reassigned to report directly to the Under Secretary of Energy. In assuming line management oversight of the Rocky Flats Area Office and related facilities, the Assistant Secretary will be accountable for on-going operations. It is expected that implementation actions affecting the Rocky Flats Facilities which already have been approved will continue without interruption. Def. Ex. 29.5 Although these directives were issued over the signature of Under Secretary Tuck, there is no genuine issue of fact whether Mr. Tuck was acting pursuant to the Secretary's direction. It is clear from Secretary Watkins' deposition testimony that he was the prime mover with regard to these changes. Secretary Watkins testified that he believed that Mr. Twining was a potential "party" to the investigation underway at Rocky Flats. He testified that he believed that when a superior in the chain of command (Mr. Twining) is potentially involved, you have to "bypass that system" and "take more positive control of the situation." He chose Ed Goldberg as Acting Manager of the Rocky Flats Office in order to have someone in charge there who was not a "party" to the criminal investigation, and who would not be perceived by the FBI as interfering with the investigation. Watkins wanted Goldberg to report directly to DOE Headquarters outside "the Twining circuit." Def. Ex. 17, Deposition of James D. Watkins in this proceeding, 4/29/94, pp 27-29.

This memorandum explains why Mr. John Meinhardt, then Acting Assistant Secretary for Defense Programs, and his subordinate, Admiral Jon Barr, the Deputy Assistant Secretary for Military Application, Defense Programs, became involved in Rockwell's award fee determinations (see further discussion below). -5-

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Following the issuance of these directives by DOE's Secretariat, Mr. Twining had no further substantive involvement in decisions regarding Rockwell, although he continued to provide "support" to the Rocky Flats Area Office, and eventually communicated the award fee decision for the 89/1 period by letter to Rockwell in view of his retention of the nominal title of AFDO. Albuquerque Manager Bruce Twining testified as follows: Q. After Mr. Goldberg became acting area manager at Rocky Flats, did you have a lot of dealings with him? A. Not very many, but as this memo points out, we were expected to continue to support the office, and we did that in a number of areas, but in operational areas or major ES & H areas, there was a period of very little interaction between our staffs. Q. This memo states that Mr. Goldberg will report to the Undersecretary of Energy, John C. Tuck, with regard to operations of Rocky Flats. A. Yes. Q. Was that a change of prior procedures, or prior reporting responsibilities? A. Well, prior to this memo that area office reported to me. Q. Who do you report to, or in 1989 who did you report to as manager at Albuquerque? A. I believe at that time all the field plugged into the box that had the secretary, the deputy secretary, and the undersecretary, and I did have some daily interactions with John Tuck. Q. When did you first hear about the raid at Rocky Flats? A. The day before it happened. It might even have been the morning it happened. Q. Were you told at that time that Mr. Goldberg would come in as area manager? A. Yes, I was. -6-

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Q. Were you also told at that time that he would reporting directly to headquarters? A. Yes. Q. After Mr. Goldberg's appointment, did you consider Rocky Flats still to be under the supervision of Albuquerque? A. I considered this memo to be the effective document. That office reported to headquarters, and we were to do everything we could to help make things work. Q. So the answer is no, you did not consider -A. No, I did not -Q. -- Rocky Flats to be under your jurisdiction. A. No. Def. Supp. Ex. 53, February 23, 1993 Deposition of Bruce Twining, pp. 66-68. In his subsequent deposition in the Stone qui tam case, Mr. Twining testified as follows: Q. (By Mr. Koenigs) After the raid I think you indicated that your oversight responsibilities with respect to Rocky Flats were either diminished or eliminated. I don't mean to characterize it, but is that correct? A. I think "eliminated" is closer than "diminished." Q. Do you recall how you learned that was going to be the case? A. John Tuck, who was the under secretary at the time, telephoned me the day before the raid, or the morning of the raid, and told me the raid was going to happen, and told me how they were going to rewire the organizational chart. Q: By rewiring it, you're referring to placing Mr. Goldberg as area manager of the plant and having him report directly to headquarters? A. Yes. Def. Supp. Ex. 54, April 7, 1998 Deposition of Bruce Twining, pp. 115-116. -7-

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Mr. Goldberg testified regarding a meeting he had with Deputy Secretary Moore shortly before the June 6, 1989 FBI/EPA raid. Mr. Moore explained to Mr. Goldberg that "I would be the manager of Rocky Flats, that I would be responsible for interface with the FBI and EPA to assure a smooth process, and responsible for the operation of the plant, and I would be reporting directly to Mr. Tuck." Mr. Goldberg was told he would not be reporting to Mr. Twining, that he would be responsible for the Rocky Flats Plant from June 6 forward, but that he would receive administrative and technical assistance from Albuquerque. It was Mr. Goldberg's understanding that, before June 6, 1989, Mr. Twining had complete responsibility for the Rocky Flats Plant. Beginning June 6, Mr. Twining no longer had complete responsibility, but that he did retain some official duties. Def. Ex. 22, November 11, 1992 Deposition of Ed Goldberg, pp. 36-37. In his testimony, Admiral Barr also shed light on the allocation of responsibility for the Rocky Flats Plant which DOE effectuated on June 6, 1989. Admiral Barr testified that Albuquerque had been "cut out of the loop" as far as Rocky Flats was concerned "with exceptions." According to Admiral Barr, all substantive oversight over Rocky Flats was exercised by the Rocky Flats Office after June 6, but A. . . . There still was use of . . . some Albuquerque expertise in specific areas. The decision was made not to make Rocky Flats a full operations office, which would have taken all areas, and some areas, such as safety and security­I think I remember correctly­remained with the Albuquerque Operations office. Q. Any other areas? A. Some of the administration, I think. As I say again, I believe safety and security. I can't recall any others. But the effort, the thrust was to provide on-site capability [in the Rocky Flats Office] to adequately oversee the contractor [Rockwell]. Def. Ex. 21, September 23, 1994 Deposition of Jon Barr, pp. 42-43. -8-

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These decisions by the Secretary did not constitute a breach of Rockwell's contract because nothing in the award fee provision of the contract precluded these actions. In saying that anyone "acting as manager" of Albuquerque may decide Rockwell's award fee, the contract uses "acting" as a participle, rather than as adjective or formal title. Therefore, the fact that the Secretary did not formally transfer Mr. Twining's nominal titles of "Manager of Albuquerque" or "AFDO" to some other designated official of DOE is not material. The test is functional, not formal. Rockwell's counsel appeared to concede this at the September 21, 2006 hearing: Rockwell's construction of the words "award fee determination official (manager or anyone acting as manager, Albuquerque operations)" is that the AFDO is the Albuquerque manager, or if there happens at a particular time not to be a manager, it is whoever is fulfilling the manager's duties. 9/21/06 Hearing Tr. At 3. At another point, Rockwell's counsel explained: Rockwell is not arguing that the AFDO must be someone formally named to the position of manager or acting manager of the Albuquerque operations; rather, the AFDO is the manager, and if there is no manager, then the AFDO is whoever is fulfilling the duties of manager, whether given the title "acting manager" or not. Id. at 4. Because the contract permitted "anyone acting as Manager" of Albuquerque in a substantive, functional sense to determine Rockwell's award fees, this case is appropriate for summary disposition in favor of the government on the basis that DOE did not breach the contract when Secretary Watkins transferred Mr. Twining's substantive role as AFDO to DOE Headquarters officials of his choosing. B. Supplemental Facts Regarding Headquarters' Involvement In The Award Fee Process

During the September 21, 2006 hearing, the Court asked the government's counsel to further elucidate the process by which DOE Headquarters officials determined Rockwell's award -9-

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fees, identifying the specific officials involved and their roles. See 9/21/06 Tr. at 51 and 53-54. In response to that direction by the Court, the government respectfully sets forth in the next two subsections detailed facts regarding the two award fee periods in question. To summarize, these facts show that it was the Headquarters Office of Defense Programs, with the concurrence of the Secretariat, which exercised the AFDO function subsequent to the June 6, 1989 raid. Mr. Twining retained the nominal title of AFDO for the 89/1 award fee period, and delegated that nominal title to the Manager of Rocky Flats, Mr. Robert Nelson, for the second period, but neither Mr. Twining nor Mr. Nelson had substantive involvement in determining the award fees. The award fees were determined by officials in Defense Programs with the concurrence of the Secretariat. The field officials were then tasked to communicate those decisions to Rockwell. Although the substantive AFDO decisionmaking was exercised by Defense Programs, Mr. Twining for the first period, and Mr. Nelson for the second, subjectively agreed with Headquarters' determinations. Moreover, when Rockwell appealed the determinations made by Headquarters, Mr. Twining and Mr. Nelson subjectively determined that the award fee decisions should not be raised in response to Rockwell's appeals. 1. The 89/1 Award Fee Determination Process

Even prior to the June 6, 1989 raid, DOE had instituted a requirement that field managers' award fee decisions receive the concurrence of the Assistant Secretary for Defense Programs. In his deposition, Mr. Twining was asked to describe how the award fee process worked. In the course of describing that process, Mr. Twining testified: And at the time of this award fee, we had just gotten into a process of formally sending those proposed determinations to headquarters for concurrence. - 10 -

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Mr. Twining could not recall the date when Headquarters' concurrence in the award fee decision became a requirement. He did not believe it was in place during 1988. He believed the requirement resulted from a task force that was formed under Secretary Watkins' administration which began on January 1, 1989. Def. Supp. Ex. 53, February 23, 1993 Deposition of Bruce G. Twining, pp. 16-18, 23-24.6 It was pursuant to this requirement that Mr. Twining submitted his May 31, 1989 memorandum proposing an award fee of $5,176,482 to Mr. Troy Wade, the Acting Assistant Secretary of Defense Programs. See Def. Ex. 32. The memorandum contained boxes in which Mr. Wade (who was succeeded by Mr. Meinhardt) could check off whether he concurred or did not concur in Mr. Twining's recommendation. In this memorandum, Mr. Twining termed his recommendation for Rockwell his "tentative finding," thereby clearly indicating that Mr. Twining understood that his conclusion did not constitute an actual award fee "determination" unless and until it received Mr. Wade's concurrence. Similarly, an August 4, 1989 DOE memorandum by Mr. Ted Hill, the secretary of the Albuquerque Performance Evaluation Review Board ("PERB"), refers to Mr. Twining's original May 31, 1989 recommendation as Mr. Twining's "tentative finding," and notes that Mr. Twining submitted it to Mr. Wade for "review and concurrence/nonconcurrence." Def. Supp. Ex. 55, August 4, 1989 Memorandum by Ted Hill; and Def. Supp. Ex. 56, Deposition testimony of Charles Troell, p. 39.

We have reviewed the record, but have been unable to locate any indication of the exact date when the requirement of Headquarters concurrence became effective. It was reflected in a February 19, 1990 revision of the Albuquerque Operations Award Fee Handbook (see discussion below), but there is no genuine dispute that Mr. Twining considered the requirement to be in force when he sent his May 31, 1989 recommendation for Rockwell to Mr. Wade. Excerpts of the 1990 revision of the handbook are submitted herewith as Def. Supp. Ex. 57. - 11 -

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This recommendation by Mr. Twining never did become a final award fee determination. At the time he received Mr. Twining's May 31, 1989 award fee recommendation for Rockwell, Mr. Wade was aware of the criminal investigation underway at Rocky. Mr. Wade concluded that it would not be prudent to make a final award fee determination for Rockwell based on Mr. Twining's recommendation in view of the ongoing investigation. Def. Ex. 14, Deposition of Troy Wade in this proceeding, 9/21/94, pp. 28-29. This is reflected in a June 21, 1989 memorandum to Mr. Twining in which Mr. Wade stated: Please be advised that I have thoroughly reviewed your findings for each contractor as noted in your May 31, 1989, memorandum to me, subject same as above. Based upon your input and my own personal observations, I concur in your findings for Allied Signal, Inc., EG&G, Mound Applied Technologies, Inc., General Electric Company, Mason Hanger-Silas Mason, Inc., and Westinghouse Electric Corporation. In the case of Rockwell International Corporation, it would be premature at this time to make a final determination until the Department of Energy investigation of environmental, safety, and health charges are [sic] resolved. Def. Supp. Ex. 52. Following the raid, Headquarters directed Mr. Goldberg to review the then still pending Rockwell award fee recommendation in light of new information that was being uncovered by the team he had brought to Rocky Flats. The team consisted of 50 or so experts to establish an environmental, safety and health baseline and give him an idea of what was going on at the Rocky Flats Plant. This team presented Mr. Goldberg and DOE management officials with information on a daily and weekly basis. Def. Ex. 22, Deposition of Ed Goldberg in this proceeding, 11/10/92, pp. 40-42, 45-46, 55-56, 66; Def. Ex. 19, Trial Testimony of Ed - 12 -

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Goldberg, 3/22/99, p. 4410. Mr. Goldberg made an on-site review of Rockwell's performance for the period October 1, 1988, through March 31, 1989, and submitted his observations to Mr. Twining in a memorandum dated July 27, 1989. Def. Supp. Ex. 55, August 4, 1989 Memorandum by Ted Hill. Mr. Goldberg's July 27, 1989 memorandum to Mr. Twining cited specific deficiencies which Mr. Goldberg had observed with regard to the FPA's for General Management, Quality Assurance, and Environment, Safety and Health. Mr. Goldberg wrote: The problems that I see in my review of Rockwell's ongoing operations tend to impact the three FPA's noted above for which I recommend [downwardly] revised scores, but the basic problem which underlies all FPA's is a lack of discipline in operation. This is apparent in Rockwell's failure to adequately define the entire safety envelope for the operation of each facility. This should, but does not, manifest itself in a cohesive flow from Safety Analysis Reports to Operational Safety Requirements to limiting conditions for operations to detailed operator procedures. A lack of clear lines of responsibility for operations, safety, maintenance, etc. is apparent. Mr. Goldberg also cited a lack of discipline in the Waste Management and Quality Assurance programs. Def. Supp. Ex. 58, July 27, 1989 Memorandum Edward S. Goldberg to Bruce Twining. Mr. Twining's May 31, 1989 recommendation had recommended the following grades for Rockwell in the Functional Performance Areas (FPAs) set forth in the Performance Evaluation Plan: FPA's General Management Production Operations Cost Managment Numerical Grade 92 96 95 - 13 Weight 25% 15% 15% Score 23.00 14.40 14.25

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Quality Environment, Safety & Health Chemical Operations

95 81 91

15% 20% 10% 100%

14.25 16.20 9.10 91.20

Those grades, when weighted according to the weights for each FPA set forth in the Performance Evaluation Plan, led to an overall score of 91.20, resulting in a recommended award fee of $5,326,482 for plant operations. See Pl. Ex. 6. Mr. Goldberg recommended a reduction in the numerical ratings for three FPAs. Mr. Goldberg's recommended ratings were as follows, as compared to Mr. Twining's: FPA's General Management Quality Environment, Safety & Health Numerical Grade 81 88 79 Weight 25% 15% 20% Twining's 5/31 Recomm. 92 95 81

Mr. Goldberg did not change the ratings Mr. Twining had recommended for the other FPAs­i.e., Production Operations, Cost Management, and Chemical Operations­or the weights attached to any of the FPAs. The reduced ratings led to an overall rating for Plant Performance of 87 and to a corresponding reduction in recommended award fee to $3,628,622. Def. Supp. Ex. 58, July 27, 1989 Memorandum Edward S. Goldberg to Bruce Twining. At the time he received Mr. Goldberg's July 27, 1989 memorandum, Mr. Twining believed Mr. Goldberg was more fully informed about Rockwell's performance than Mr. Twining had been when Twining made his initial May 1989 recommendation. He felt there were many more DOE people looking at the plant in intimate detail than there had been before the raid. Def. Ex. 8, Deposition of Bruce Twining in this proceeding, 2/23/93, pp. 69-70, 76, 90, 93. - 14 -

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Mr. Charles E. Troell, the Chairman of DOE's PERB in the Albuquerque Operations Office testified at his deposition: I can remember, for example, Twining called me in one day and he says, "Hey, you have seen some of the new input that we have gotten from other folks, including Goldberg, and he said, in light of that, if you were to reassess the performance now, would you come up with a different answer than you did with the information that was available to you at the time the PERB worked before?" And I said, "Yeah, there is additional information, in fact, we didn't have in our possession at the time that we did it, and it probably would lower the overall rating and performance grade." Because Goldberg and company looked a lot more carefully and a lot more specifically at some areas than we had available to us in the normal process that preceded that. Def. Supp. Ex. 64, March 2, 1993 Deposition of Charles Edward Troell, p. 58. In July 1989, Mr. Troell memoralized this view in a memorandum to Mr. Twining stating that, if the PERB were to reassess Rockwell's performance for the 89/1 award fee period, the PERB would in all likelihood recommend a lower overall rating. Mr. Troell wrote: "Therefore, the PERB would not object to Ed Goldberg's proposed overall numerical rating of `87.'" Def. Supp. Ex. 59. Mr. Twining modified his original May 1989 recommendation to reflect the input by Mr. Goldberg, and adopted Mr. Goldberg's recommendation of $3,628,622 as his (Mr. Twining's) own recommendation to DOE Headquarters. Mr. Twining's concurrence in Mr. Goldberg's recommendation is reflected in an August 8, 1989 memorandum from Mr. Twining to Mr. John L. Meinhardt, the Acting Assistant Secretary for Defense Programs, HQ (who by that time had succeeded Mr. Wade). Def. Supp. Ex. 60. Mr. Meinhardt concluded that Mr. Goldberg's ratings in the cited FPA's still were too high based on DOE Headquarters' knowledge of Rockwell's performance. Mr. Meinhardt wrote - 15 -

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a handwritten notation next to Mr. Goldberg's weighted ratings for General Management, Quality, and Environment, Safety and Health which stated: Too high! Based on what we know and Goldberg's comments, how can Ed arrive at these %? Def. Supp. Ex. 58, July 27, 1989 Memorandum from Edward S. Goldberg to Bruce G. Twining. At the time, Headquarters was gathering extensive, detailed information regarding Rockwell's performance through frequent reporting by Mr. Goldberg to Headquarters, and the Tiger Team and other groups of expert reviewers Headquarters had dispatched to Rocky Flats.7 Mr. Meinhardt tasked one of his subordinates, Admiral Jon Barr, the Deputy Assistant Secretary for Military Application in Defense Programs, with revising Mr. Goldberg's recommendation. An undated memorandum written by Ted Hill of the Albuquerque Operations Office states that Admiral Barr was drafting another award fee recommendation. Mr. Hill's memorandum noted that "Admiral Barr is delaying his decision until he determines whether or not those `on high' will support his position." Def. Supp. Ex. 61. Admiral Barr was intimately familiar with Rockwell's performance based upon trips he took to Rocky Flats and input from experts sent to the plant.8 Admiral Barr completed his recommendation, and submitted it to Mr. Meinhardt on September 6, 1989. Admiral Barr recommended that Mr. Goldberg's rating of 79 in the ES&H FPA (which had been adopted by Mr. Twining) be downgraded to a rating of 65.25. Admiral Barr cited specific examples of ES&H deficiencies which led him to recommend the reduction.

7

See DPFUF, nos. 34-41 and 43-45, and 47-50. See DPFUF nos. 62-72. - 16 -

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He advised Mr. Meinhardt that an ES&H rating of 65.25 would result in an overall Rockwell rating of 84.75 (versus Mr. Goldberg's overall rating of 87, which Mr. Twining had adopted), and a reduction in the recommended award fee for Plant Performance for the 89/1 period of $2,716,307 (versus Mr. Goldberg's recommended award fee of $3,628,622, which Mr. Twining had adopted). See Def. Supp. Ex. 62. On September 20, 1989, Mr. Meinhardt faxed Admiral Barr's September 6, 1989 memorandum to Jim Culpepper, Mr. Twining's Deputy Manager of the Albuquerque Operations Office. Def. Supp. Ex. 63. Concurrently, Mr. Meinhardt sent a letter to Mr. Twining incorporating the concerns cited by Admiral Barr, and Barr's award fee recommendation. Mr. Meinhardt explained: This Office has carefully reviewed all of the documentation provided by your Office regarding the Award Fee Determination for the period in question. The Office is essentially in concurrence with your recommendations, with an additional downward adjustment in the area of Environment, Safety and Health (ES&H). The additional downward adjustment to ES&H reflects several concerns. Operations in Building 771 had to be stopped during October 1988 due to inadequate safety procedures and radiological safety margins in the building. Although RI [Rockwell International] pursued a very aggressive corrections effort after the fact, the mere existence of this situation demonstrated less than satisfactory attitudes, procedures, and awareness of safety issues on its part. Out of 230 safety concerns documented by external reviews and an internal RI review done prior to the award fee period, 91 were not addressed during the period. This further evidences a lack of priority attention paid to ES&H. During the period, 32 new safety concerns, including six classified as Type 2 (serious), were identified. Finally, the release of chromic acid from Building 444 into the plant's holding pond could have resulted in a major environmental incident. An inoperable alarm system and deficient operator vigilance contributed significantly to the seriousness of this incident. Overall, there is strong evidence that throughout the award fee period there was a continuing pattern - 17 -

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of lax attitudes, inadequate procedures, and lack of consideration of ES&H issues. My Office has concluded that the "moderately good" numerical grade of 79 given to RI for its performance under the ES&H category be downgraded to a numerical grade of 65.25. Since ES&H carries an evaluation weight of 20 percent, the overall rating for the period drops from 87 to 84.25. This equates to an award fee of $2,716,307 for the Plant. We have not changed the award fee of $186,591 for PRMP/PROVE. Therefore, the total fee is $2,902,898. Admiral Watkins concurs in this recommendation. In order to facilitate the dissemination of this information to RI and coordinate it with the letter from Admiral Watkins to Chairman Beall of today's date, we have attached a copy of your draft letter to RI which reflects our concerns in the ES&H area. Def. Supp. Ex. 65. Mr. Twining prepared a memorandum to the file in which he stated: I hereby determine an award fee of $2,903,215. This determination is based on the attached memorandum from John L. Meinhardt, Acting Assistant Secretary for Defense Programs, and the attached Performance Evaluation Report. Def. Supp. Ex. 66.9 The DOE Headquarters Office of Defense Programs had the concurrence of the Secretariat for the actions it took with respect to this award fee. Mr. Meinhardt's September 20, 1989 letter to Mr. Twining stated that "Admiral Watkins concurs in this recommendation." Def. Supp. Ex. 65. This is confirmed by the September 20, 1989 letter from Secretary Watkins to Rockwell's CEO Donald Beall stating in pertinent part: As you know, the Department has had under advisement the question of the proper award fee determination to be made for the management and operation of the Department's Rocky Flats plant

It is not clear from the record why the fee Mr. Twining said he had determined, i.e., $2,903,215, was slightly higher than the fee in Mr. Meinhardt's letter, i.e., $2,902,898. - 18 -

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for the period October 1, 1988 through March 31, 1989. Because of the importance of this facility's operations to DOE's ability to carry out its missions and the environmental sensitivity presented by its activities, at my direction the Department has considered with special care the proper fee for this period, particularly as it reflects Rockwell's performance in environment, safety and health. After this thorough review, the Department has concluded that an award fee for this period that reflects approximately 40% of the total possible award fee is the proper determination in this instance. Accordingly, Rockwell will, in the near future, be advised of the particulars of the award fee determination of the Department by the appropriate contracting procedure, as is the normal procedure. Def. Ex. 49, September 20, 1989 Letter from James D. Watkins to Donald R. Beall. Deputy Secretary Moore testified at his deposition in Stone: Because of Rocky Flats they [award fee decisions] came to me . . . whether those facilities were something I worked with or not, came to me for review to be sure the system was working like we had decided, the new system. Nancy Wolicki as I remember was the person who would receive it, review it, go into great details, come in and brief me, and they [sic] would make a decision whether we agreed or disagreed with the Operations Office's determination. In the early years I think there were a number of them we sent back and said "We don't agree" or we set a new number for it. That happened on the Rockwell award fee. Def. Supp. Ex. 70, April 15, 1998 Deposition of W. Henson Moore, at 132. Mr. Moore, who had made his own personal observations at Rocky Flats over a significant time period following the raid, believed that the Tiger Team was looking more deeply into Rockwell's ES&H deficiencies than Goldberg had been able to do, and that DOE Headquarters acted on Rockwell's award fee with better information than Goldberg had available. In deciding what award fee DOE Headquarters felt should be awarded to Rockwell, Deputy Secretary Moore took into account the Tiger Team report. Moore believed that the - 19 -

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decision Headquarters made on the award fee fairly reflected Rockwell's performance given all of the deficiencies he had observed and the Tiger Team had reported.10 On September 27, 1989, Mr. Twining sent Rockwell a letter informing it that "the Department of Energy (DOE) hereby determines that Rockwell International Corporation (Rockwell) has earned an award fee of $2,716,624 for Plant and $186,591 for PRMP/PROVE, for a total of $2,903,215." Mr. Twining raised the dollar figures slightly from those contained in the draft letter Mr. Meinhardt had sent Mr. Twining, as noted above, and changed the phrasing identifying who had determined the fee from "I hereby determine" (in Mr. Meinhardt's letter) to "the Department of Energy (DOE) hereby determines." Compare Def. Supp. Ex. 65 (containing Mr. Meinhardt's draft letter) with Def. Supp. Ex. 67 (the letter signed by Mr. Twining). Rockwell, upon receiving the award fee determination appealed the assessment of their performance to Mr. Twining. Rockwell provided a written analysis in a letter dated October 25, 1989 to Mr. Simonson, who had succeeded Mr. Goldberg as Manager of the Rocky Flats Area Office. Rockwell made a verbal presentation on October 30, 1989 to Charles Troell, Mr. Twining's Assistant Manager for Management and Administration and James A. Scout, Chief Counsel of Albuquerque Operations. Def. Supp. Ex. 68, November 8, 1989 Memorandum from Bruce Twining to John L. Meinhardt. On November 14, 1989, in a letter signed by Mr. Culpepper for Mr. Twining, Mr. Twining informed Rockwell that, "[a]fter due consideration of the [written and verbal presentations by Rockwell], I have determined that my original determination of an award fee in

10

See DPFUF nos. 47-50, and the proof cited in support thereof. - 20 -

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the total amount of $2,903,215.00 for the performance period noted above, shall remain unchanged. Def. Supp. Ex. 69.11 Although the government's stipulation describes the award fee decision for 89/1 as have been "mandated" by DOE Headquarters officials and states that those officials "caused" Mr. Twining to issue the award fee decision, the evidence shows that Mr. Twining subjectively agreed with the fee determined by Headquarters.12 Mr. Twining testified that he was comfortable with the 65.25 grade Meinhardt gave Rockwell for ES&H, based on the additional information that was coming out about Rocky Flats. Def. Ex. 8, Deposition of Bruce Twining in this proceeding, 2/23/94, p. 111-112. At the trial in the Stone case, Mr. Twining testified that he adopted the approximately $2.9 million award fee figure reflected in his September 27, 1989 letter to Rockwell after his staff, some of whom were members of the PERB, signalled their agreement with that figure by initialing off on the concurrence copy of the letter informing Rockwell of the fee. Def. Supp. Ex. 71, Trial Testimony of Bruce Twining in Stone, pp. 3281-

A file copy of this letter, which is also included in Def. Ex. 69, reflects that Deputy Secretary Moore concurred in Mr. Twining's decision not to change the award fee after Rockwell's appeal. During the September 21, 2006 hearing the Court asked: "What do we do with the stipulation because there are parts of the stipulation that do not accord, shall we say, with the parties' current arguments." 9/21/06 Tr. at 75. The government entered into the stipulation in consideration for Rockwell's promise not to depose seven high-ranking DOE Headquarters officials. See Pl. Supp. Ex. 40. Those officials were Watkins, Moore, Tuck, Wade, Meinhardt, Barr, and Gregory Fess. See Def. Supp. Ex. 84. The government did not get the benefit of this bargain. Rockwell went on to depose six out of seven of these officials: Secretary Watkins twice (on April 29, 1994 and April 28, 1998), Deputy Secretary Moore twice (April 29, 1994 and April 15, 1998), Under Secretary Tuck (on April 28, 1994), Mr. Wade (on September 21, 1994 and October 11, 1994), Admiral Barr (on September 23, 1994), and Meinhardt (on April 26, 1994). The government respectfully submits that the stipulation appears ambiguous when viewed in the context of the evidentiary record developed over the course of several years of discovery subsequent to its execution. The government further submits that, in the face of such ambiguity, it is the evidence that should govern. - 21 12

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3282. Mr. Twining's subjective agreement with the award fee determined by Headquarters is memorialized in Def. Supp. Ex. 66, which is a memorandum by Mr. Twining to the file stating: I hereby determine an award fee of $2,903,215. This determination is based on the attached memorandum from John L. Meinhardt, Acting Assistant Secretary for Defense Programs, and the attached Performance Evaluation Report. 2. The 89/2 Award Fee Determination Process

Mr. David Simonson was appointed Manager of the Rocky Flats Office of DOE on September 12, 1989, replacing Mr. Goldberg. Def. Ex. 34. In a December 6, 1989, memorandum to Under Secretary Tuck, Mr. Simonson recommended that Rockwell receive an award fee for April 1, 1989 through September 30, 1989 of $3,114,245, plus $628,982 for PRMP/PROVE, for a total payment of $4,176,077. Mr. Simonson advised Mr. Tuck that his recommendation was based upon staff level assessment against the Award Fee Plan, review and modification by the Rocky Flats PERB, and presentation to him for final determination. Mr. Simonson's memorandum contained a concurrence line for Mr. Tuck, which apparently was never signed, because DOE Headquarters disagreed with his recommended award fee. See Def. Ex. 35. Mr. Simonson stated in the memorandum that he was recommending an increase in Rockwell's rating for ES&H performance over the prior period's rating due to Rockwell's assistance in negotiations with EPA and the State of Colorado on environmental agreements and compliance with those agreements. Mr. Simonson wrote that this performance offset Rockwell's performance on safety which, according to Mr. Simonson, "continues to be unacceptable." See Def. Ex. 35, December 6, 1989 Memorandum from David P. Simonson to John C. Tuck, p. 1.

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DOE Headquarters Environment, Safety and Health officials disagreed with an increase in Rockwell's ES&H rating. On December 18, 1989, Robert W. Barber, DOE Headquarters' Acting Director, Office of Safety Compliance wrote a memorandum providing his office's analysis of the award fee proposed by Mr. Simonson. Mr. Barber wrote: We essentially agree with the narrative information concerning safety in the memorandum and its five attachments. However, sufficient data is not provided for us to understand why the rating for Environment, Safety and Health for the Plant for the current 6 month period should increase to 78 pervent from a 65.25 percent rating for the previous 6 month period. The written explanation in the [Simonson] memorandum stated: "As the evaluation indicates, the contractor's performance in the safety area continue [sic] to be unacceptable. However, this has been offset in our evaluation by the performance of Rockwell in assisting with negotiations with EPA and the State on environmental agreements and complying with these very aggressive agreements." The weight given this performance in the environmental area must have been significant to offset the unacceptable safety rating and increase the overall Environment, Safety and Health rating. In addition, the recent safety and health review (1/27-12/1) identified long standing concerns that are more extensive than those included in the award fee determination: an example is the lack of a traceable safety control system from SAR's to Operational Safety Requirements to procedures. Mr. Barber also questioned the General Management rating recommended by Mr. Simonson, noting that it was the same as the last period's (81), and explaining: "Since no progress has been made during the current rating period on safety and health issues, we question no reduction in the rating." Def. Supp. Ex. 72, December 18, 1989 Memorandum from Robert W. Barber to G.J. Judge.13

The reference in Mr. Barber's memorandum to the "recent safety and health review" appears to be a reference to a comprehensive look at Rocky Flats by DOE Headquarters that Admiral Barr testified occurred "shortly before Thanksgiving, 1989." Admiral Barr may have been slightly incorrect about the date of the review. It appears from the Barber memorandum that the review actually took place shortly after Thanksgiving of that year. - 23 -

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On December 28, 1989, Peter Brush, the Assistant Secretary for Environment, Safety and Health wrote a handwritten memorandum to Dave LeClaire in Defense Programs stating that For RFP [the Rocky Flats Plant] we cannot agree that some good actions in the environmental area offset an unacceptable safety rating. The Action Memo needs to reflect this. Def. Supp. Ex. 73, handwritten note from "Peter" on letterhead of the Assistant Secretary, Environment, Safety and Health.14 Admiral Barr prepared a memorandum to the Acting Assistant Secretary for Defense Programs recommending that Rockwell's ratings in the FPA's for ES&H and General Management be reduced from the levels recommended by Mr. Simonson, resulting in an award fee for plant operations of $2,160,393. Def. Supp. Ex. 75, p. 3, carryover paragraph. Admiral Barr cited specific reasons for his lowered assessment. Id., pp. 1-2. Admiral Barr further recommended a downgrade of the award fee of PMRP/PROVE to $338,035. Id. p. 3, 1st full paragraph. Admiral Barr's memorandum, which was unsigned and undated, was "cc'd" to Dave Simonson, Manager, RFO.

In any event, Admiral Barr testified that he led one branch of the team that made that review, and Mr. Starostecki, another Headquarters official, led the other. The team spent four days at the plant. This review discovered numerous deficiencies in virtually all areas. The review indicated poor performance by Rockwell across the board, and led to a halt of weapons production. DOE subsequently discovered that it was very difficult to effect corrections to the identified problems, because Rocky Flats operational capabilities had become so flawed during Rockwell's management. Def. Ex. 21, Deposition of Jon Barr in this proceeding, 9/23/94, pp. 151-152. "Peter" is identified as Peter Brush in Def. Supp. Ex. 74, which also reflects also bears a handwritten note indicating that office's nonconcurrence in the Simonson recommendation. Def. Supp. Ex. 74, 12/14/89 Routing and Transmittal Slip from Robert D. Quinn to a number of DOE Headquarters officials, including Peter Brush. - 24 14

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According to a handwritten notation on another copy of Barr's memorandum, see Def. Supp. Ex. 76, it was handcarried to Rocky Flats on January 11, 1990. The notation states: " . . . Simonson does not agree with this and wants comparison with our proposal so RFO [Rocky Flats Office] position can be developed." Around January 25, 1990, Secretary Watkins, Under Secretary Tuck, and Admiral Barr made the decision to replace Mr. Simonson with Robert M. Nelson, Jr. as Rocky Flats Area Manager. Def. Ex. 36, Deposition of Robert Nelson in this proceeding, 11/9/92, pp. 22-23, 27. On February 22, 1990, Under Secretary Tuck sent a memorandum to Deputy Secretary Moore adopting Admiral Barr's description of the deficiencies in Rockwell's performance, and recommending a further lowering of its ratings in the ES&H and General Management FPA's. Mr. Tuck recommended $1,241,604 for plant operations and $338,035 for PRMP/PROVE. Def. Supp. Ex. 77. On February 23, 1990, Deputy Secretary Moore concurred in this recommendation. Def. Supp. Ex. 78. On February 26, 1990, Mr. Nelson, the then Manager of DOE's Rocky Flats Office sent Rockwell a letter stating that the "Department of Energy (DOE)" had determined an award fee of $1,241,604 for plant operations and $338,035 for PRMP/PROVE, the figures that Mr. Tuck had recommended and Mr. Moore had approved. Def. Supp. Ex. 79. Although the government's stipulation describes the award fee decision for 89/2 as having been "mandated" by DOE Headquarters officials and states that those officials "caused" Mr. Nelson to issue the award fee decision, Mr. Nelson testified at the trial in Stone that, despite receiving input from other DOE officials, he ultimately decided for himself what amount Rockwell should earn for the 89/2 period. Def. Supp. Ex. 85, Trial Testimony of Robert M. Nelson, Jr. at 3482-3485. - 25 -

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As it had done with respect to the prior award fee decision, Rockwell appealed the decision for 89/2. Rockwell provided written material to the Rocky Flats Office on May 3, 1990, and an oral presentation on July 10, 1990. In response, Mr. Nelson assembled a team of Rocky Flats employees knowledgable about Rockwell's performance to review Rockwell's information. This team recommended to Mr. Nelson that Rockwell's award fee not be changed. Def. Supp. Ex. 80. Accordingly, on July 26, 1990, Mr. Nelson sent Rockwell a letter confirming that the award fee would remain the same. Def. Supp. Ex. 86. 3. DOE Did Not Breach The Contract

The foregoing facts demonstrate that DOE did not breach the contract. In determining the 89/1 and 89/2 award fees, DOE officials duly designated by DOE's Secretariat pursuant to statutory and regulatory authority­i.e., the DOE Headquarters Office of Defense Programs­acted functionally for the Manager of Albuquerque in deciding the award fees. That did not constitute a breach in light of the language of the contract permitting "anyone acting as Manager, Albuquerque" to serve as the AFDO. Alternatively, even if the contract required that the AFDO be the responsible field official, and even if DOE Headquarters "mandated" and "caused" the decisions to be made as indicated in the stipulation, the evidence shows that Mr. Twining for the first period, and Mr. Nelson for the second, subjectively adopted Headquarters' decisions. Both testified that they agreed with the figures sent them by Headquarters. Moreover, in both cases, after appeals by Rockwell, these field officials again exercised their subjective judgment by reconfirming the original determinations.15 The contract requires

The proposition that Mr. Twining and Mr. Nelson subjectively adopted the determinations which Headquarters had made in the first instance by re-confirming them - 26 -

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only that "the award fee shall be determined subjectively by the Award Fee Determination Official." See clause 62(b)(2), Pl. Ex. 1. The evidence shows that this is what occurred in this case in regard to both award fee periods. Accordingly, defendant is entitled to entry of summary judgment that it did not breach the contract. In sections C through E below, we clarify a couple of other issues that arose during the September 21, 2006 hearing relating to the government's non-breach argument. Section E also bears on the government's waiver/estoppel defense. In Part II below, we discuss damages. C. Rockwell Has Not Alleged That DOE Breached The Award Fee Provisions Of The Contract Other Than By Having The "Wrong Official" Determine The Fees

The only contract provision which Rockwell alleges DOE breached was the provision governing who was to determine the award. As far as the procedure for evaluating Rockwell's performance is concerned, the contract sets only very broad requirements, and Rockwell has not shown that DOE breached those. For example, Appendix D of the contract16 provides that Evaluation of the Contractor's performance will be based upon the Performance Evaluation Plan established for the evaluation period by the AFDO, after consultation with the Contractor. The Performance Evaluation Plan will consist of: (i) a limited number (approximately 5-10) of identifiable areas of contract work which are designated as "Functional Performance Areas" (FPA's); and (ii) the specific weighting assigned to each FPA. The FPA's and FPE's [Functional Performance Elements] are defined in Appendix A to the Albuquerque Operations' "Handbook for Award Fee Performance Evaluation and Review Process," which has been furnished to the Contractor.

following appeals by Rockwell is not inconsistent with the government's stipulation. The stipulation addresses only the process by which the determinations were first reached, not what occurred after Rockwell appealed.
16

Appendix D is reproduced as part of Pl. Ex. 1. - 27 -

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See Pl. Ex. 1. Rockwell has not shown that DOE Headquarters, in determining Rockwell's award fees for 89/1 and 89/2, deviated from the "Performance Evaluation Plan," or failed to take into account the correct FPAs and FPEs, or deviated from the weights assigned to each FPA in the Performance Evaluation Plan.17 In fact, the evidence set forth above shows that Headquarters utilized the FPAs and weights upon which the parties had agreed, although Headquarters differed from the field officials in its judgment about the quality of Rockwell's performance under certain of the designated FPAs. The only issue Rockwell has pleaded is whether DOE breached the contract by having the "wrong official" decide the award fee.18 For the reasons shown above in Section A, that allegation is meritless. D. The Albuquerque Operations Office Award Fee Handbook Was Not Part Of The Rockwell-DOE Contract

A question arose at the September 21, 2006 hearing as to whether the Albuquerque Operations Office's Award Fee Handbook was part of the Rockwell-DOE contract, such that a failure to adhere to the handbook would constitute grounds for finding a breach of contract. The answer to that question is "no."

These FPAs and weights were specified in the contract as follows: General Management, weighted at 25%; Cost Managment, with a weight of 15%; Quality at 15%; Chemical Operations at 10%; Production Operations, weighted at 15%; and Environment, Safety & Health at 20%. See Pl. Ex. 3, Appendix D to Modification No. M128, pp. 3-4 of 9. DOE apparently did not render its award fee decision in accordance with the time frame set forth in the contract, but there is no basis for concluding that Rockwell was damaged as a result. - 28 18

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The only reference to the handbook contained in the contract is a single sentence in Appendix D, which is highlighted in the quotation below. Appendix D states in pertinent part: Evaluation of the Contractor's performance will be based upon the Performance Evaluation Plan established for the evaluation period by the AFDO, after consultation with the Contractor. The Performance Evaluation Plan will consist of: (i) a limited number (approximately 5-10) of identifiable areas of contract work which are designated as "Functional Performance Areas" (FPA's); and (ii) the specific weighting assigned to each FPA. The FPA's and FPE's [Functional Performance Elements] are defined in Appendix A to the Albuquerque Operations' "Handbook for Award Fee Performance Evaluation and Review Process," which has been furnished to the Contractor. See excerpts from Appendix D, Pl. Ex. 1, pp. 1-2 of 7 (emphasis added). The highlighted sentence does no more than describe where the FPA's and FPE's actually set forth in the contract were defined; it does not purport to incorporate the handbook into the contract. Other evidence in the record shows that the handbook was merely internal guidance intended for DOE's discretionary use in the award fee process, rather than a binding set of enforceable requirements. Mr. Twining testified that the 1977 handbook was a guidance document and that those involved in the award fee process were free to deviate from the procedures set forth therein if circumstances warranted. Def. Supp. Ex. 53, February 23, 1993 Deposition of Bruce G. Twining, pp. 15-16. The handbook itself confirms this: Substantive exceptions to the requirements of this Handbook may be authorized by the Contracting Officer or the Performance Evaluation Review Board (PERB) when such variations are determined to be appropriate for a particular CPAF [Cost Plus Award Fee] contract." Pl. Supp. Ex. 44, 1977 Handbook, pp. 1-2.

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The testimony of other DOE witnesses indicates that the handbook was not viewed by DOE as giving rise to binding requirements for the award fee process.19 Mr. Terrel Agy, an employee of DOE's Rocky Flats office who was involved in the award fee process, testified that he was given a copy of the 1977 version of the handbook in 1989. His had a lot of revisions and changed pages. Mr. Agy saw correspondence in the file indicating that Albuquerque was in the process of revising the handbook and had been doing so for some time. "[The handbook] was in a state of flux, in other words . . . ." During the time Rocky Flats was under Albuquerque, the handbook was never in a final form. For this reason, Mr. Agy did not consider the handbook something that had to be followed closely in determining Rockwell's award fee. Def. Supp. Ex. 81, October 21, 1992 Deposition of Terrel John Agy, Vol. I, pp. 85-89. Mr. Rush Inlow, who had served as Manager of the Rocky Flats office prior to Mr. Goldberg's taking over that office, testified that there were parts of the handbook that were not followed. For example, the handbook indicated that a "Performance Evaluation Committee," which was separate from the PERB, was to review the Rocky Flats office's award fee evaluation before passing it along to the PERB. Mr. Inlow did not recall this happening. Mr. Inlow also was aware of efforts to revise the handbook and "bring into it what was accepted practice at the time." Def. Supp. Ex. 82, December 1, 1992 Deposition of Rush Osborne Inlow, pp. 70-71. Charles Troell, an Albuquerque contracts official, testified that the handbook was "a guidance document, especially in a period of transition where the department is changing its award fee process. Mr. Troell further stated:

Again, the only binding requirements were those expressly set forth in clause 62 of the contract and in Appendix D. - 30 -

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The PERB, I believe, was free to use the document as guidance and then do what they thought was right in a specific circumstance. Def. Supp. Ex. 64, March 2, 1993 Deposition of Charles Edward Troell, p. 15. Eventually, DOE did revise the 1977 version. On February 16, 1990, prior to the second award fee decision at issue in this case, the 1977 handbook was formally revised with the issuance of the "Albuquerque Operations Office Handbook for Award Fee Administration." This revised handbook formalized the requirement that field officials obtain formal Headquarters concurrence before issuing an award fee determination. It stated: "The FDO [Fee Determining Official] will obtain appropriate DOE HQ concurrence prior to providing the award fee determination to the Contractor." Def. Supp. Ex. 57, Albuquerque Operations Office Handbook for Award Fee Administration, p. III-10. Rockwell may suggest that the absence of language in the 1977 handbook providing for Headquarters concurrence means that Mr. Twining's submission of his May 31, 1989 award fee recommendation to DOE Headquarters was itself a breach of the contract. However, as shown above, the handbook merely provided discretionary guidance for DOE in reaching award fee determinations; it did not create contractually enforceable limitations. Nothing in the language of the contract itself precluded Mr. Twining, while he was acting as AFDO, from submitting his award fee conclusions to Headquarters for concurrence, as long as he subjectively agreed with the resulting numbers, which he testified he did in this case.

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E.

DOE Did Not "Conceal" Headquarters' Involvement In Rockwell's Award Fee Determination

DOE did not conceal Headquarters' involvement in the determination of the award fee process, as Rockwell has lately alleged. See 9/21/06 Tr. at 33-34. On June 16, 1989, Deputy Secretary Moore publicly announced that DOE was suspending bonus payments for good performance by Rockwell at Rocky Flats. A news article reporting the announcement was headlined: "U.S. Suspends Bonus to Operator of Rocky Flats Plutonium Plant." It stated: W. Henson Moore, the Deputy Energy Secretary, said this afternoon that his department was suspending bonus payments for good performance by the company, the Rockwell International Corporation, for the period from September 1, 1988 [sic] to March 31, 1989. Def. Ex. 41, June 17, 1989 New York Times article. A few days later, on June 20, 1989, Mr. Moore wrote to Mr. Sam Iacobellis, President of Rockwell's Aerospace Operations, as follows: This letter will confirm our conversation of last week regarding the status of the Department's determination of Rockwell's award fee for the most recent completed evaluation period . . . As I mentioned during our conversation, the final determination has been suspended pending receipt by the Secretary of the report of the special departmental team that he dispatched to Rocky Flats. I anticipate that this report will have been rendered in sufficient time so that the