December 11, 2020

Victory Through Production: Are Legacy Costs of War Scuttling the “GOCO Model”?

Robert M. Howard (robert.howard@lw.com) chairs the San Diego-based Environment, Land & Resources Department of Latham & Watkins LLP. Shawn T. Cobb (shawn.cobb@lw.com) is a senior associate at the firm. This article is dedicated to the memory of George H. Howard, an Army veteran; Edwin Fletcher Woodhead, a Navy veteran; and U.S. veterans from World War II through today.

I.  Introduction

The costs of World War II and the wars of the twentieth century that followed continue to accrue today. The costs will continue to accrue for decades to come, well beyond the lifetimes of those who fought the battles and manned the arsenals. The costs take the form of expensive weaponry and lengthy site remediation. Such is the environmental legacy of the United States’ early generation industrial practices during the course of history’s most 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 government could not do it alone. Under conditions of extreme national duress, “Congress sought to do everything possible to retain and encourage individual initiative in the world-wide race for the largest and quickest production of the best equipment and supplies. It clung to its faith in private enterprise.”2 Private industry demanded in return nothing more than a fair and durable allocation of risk. The model worked.3

The same national defense program that achieved “victory through production” from World War II through the Cold War is now fading into insignificance. Why would the U.S. government allow such an unthinkable outcome? The short answer is because the costs of past wars have become burdensome and distasteful to an increasingly debt-ridden U.S. government. The costs of past wars have reached the point where it is now politically tolerable (although strategically short-sighted) to fault the very contractors that had been instrumental in achieving victory. In so doing, the U.S. government is breaking faith with a “grand bargain”4 it formed with private industry, which has acted as a cornerstone of defense policy for the last seven decades. 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 contractors in exchange for their work — and accept, until completion and without renegotiation, all the “costs of war.” Today, the U.S. government is aggressively reneging on past contracts in favor of reallocating risks it once assumed in order to obtain lower-cost military products.

This article opens with a discussion of the historical basis for the development of the Government-Owned, Contractor-Operated (GOCO) model and the U.S. government’s standard contract rules as they relate to environmental costs. With this historical context, the article continues by exploring the three primary paths available to contractors to obtain reimbursement for environmental costs stemming from our country’s legacy of war: (1) direct reimbursement through the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA); (2) direct reimbursement through government contracts performed long ago; and (3) indirect reimbursement through the allowability of environmental costs on existing government contracts. Finally, the article concludes by examining the history of past U.S. settlements at GOCO facilities and the test-case litigation between the government and Lockheed Martin relating to allowability and double recovery for environmental contamination at three industrial sites in California.

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