Full opinion text
SECOND AMENDED OPINION AND ORDER CONBOY, District Judge: This is a lawsuit principally between the United States (“the Government”) and one of the nation’s leading defense contractors, General Dynamics Corporation (“GD”). The Government filed this case against GD in 1985, and the events that form the basis of this litigation occurred almost 20 years ago. The Government’s central claim in this case is that GD provided the Government with false ship-construction cost estimates when GD applied to the United States Maritime Administration (“MarAd”) for ship construction subsidies known as Construction Differential Subsidies (“CDS”). GD sought these subsidies as part payment for GD’s construction of two Liquid Natural Gas (“LNG”) carriers for a partnership known as the Lachmar partnership. The Government asserts that because MarAd relied on GD’s false cost estimates when MarAd computed the size of GD’s CDS’s, GD is liable to the Government for damages, recision, and restitution. Accordingly, the Government is seeking in excess of $300 million from GD. The case was tried without a jury from December 10, 1991 to March 10, 1992. GD maintains that the estimates it provided to MarAd in the 1970’s were not fraudulent, but were fair and reasonable. The Government in substance claims that GD had internal, lower cost estimates which it did not disclose, and that, ipso facto, the estimates it did submit were not fair and reasonable. For the reasons that follow, we conclude that the Government has failed to carry its burden of proof, and enter judgment in favor of GD on all of the Government’s claims. This shall constitute the Court’s findings of fact and conclusions of law in this matter. I. Statutory Background A. The Merchant Marine Act of 1936 The Merchant Marine Act of 1936, 46 App. U.S.C.A. § 1101 et seq., (“the act”) as amended, establishes several programs to aid in the development and maintenance of a merchant marine in the United States. Two of the programs, one codified under Title V of the act and the other codified under Title XI of the act, are implicated in this case. We will discuss each program seriatim. . Title V of the act, better known as the Construction Differential Subsidy (“CDS”) program, 46 App. U.S.C.A. §§ 1151-61, was intended by Congress to encourage ship purchasers, who wish to operate ships in foreign commerce, to place their orders for ship construction with American rather than foreign shipyards. Under the CDS program, when the Secretary of Transportation (“the secretary”) is informed by a prospective ship purchaser that it wishes to have a particular ship constructed in an American shipyard, the secretary purchases the ship from the American shipyard at the ship’s American price, and then sells the ship, at the vessel’s lower foreign price, to the purchaser. By doing this, the secretary effectively subsidizes the purchaser’s acquisition of the ship from the American shipyard. The Maritime Administration, which until 1981 functioned as part of the Department of Commerce and now is a component of the Department of Transportation, administers the CDS program. Prior to 1970, the Secretary of Commerce computed the proper size of a CDS by establishing, through competitive bidding, the domestic cost of building the ship in question, and then subtracting from that figure a fair and reasonable estimate of the cost of the ship if it were to be constructed in a foreign shipyard. 46 App. U.S.C.A. § 1152(a), (b). Under this system, a shipyard that created the design for the ship was at a disadvantage vis-a-vis other shipyards when competitively bidding for the ship’s construction contract. This was so because when formulating its bid, the designing shipyard not only had to defray construction costs, but also had to defray the cost of creating the ship’s design. Other shipyards were permitted to utilize the design specifications without cost when formulating contract bids, and were therefore able to underbid the designing shipyard. Thus, the pre-1970 statutory scheme created a disincentive to ship design. See Hearing on H.R. 15424 Before the Subcomm. on Merchant Marine of the House Comm. on Merchant Marine and Fisheries, 91st Cong., 2d Sess. 78-81 (April 9, 1970). In 1970, Congress amended the act to do away with this disincentive. The amendment allows the Secretary to calculate CDS’s using prices negotiated between ship purchasers and domestic shipyards as the domestic prices of the ships in question. Under this scheme, the designing shipyard is required to show its ship design only to a potential ship-purchaser, and not to potential competitors. If the potential ship-purchaser wants to buy the ship, the designing shipyard and the purchaser establish the domestic construction price of the ship through negotiation. The ship-purchaser and the shipyard are then obligated to supply to MarAd back-up cost details and other evidence that shows that the negotiated price is “fair and reasonable.” 46 App. U.S.C.A. § 1152(a)(ii). Neither the act nor its legislative history elucidate the meaning of a “fair and reasonable” price in connection with a negotiated domestic price of a ship. However, when discussing the terms “fair and reasonable” in connection with estimated foreign prices of ships, Congress “recognized that the determination of estimated foreign costs is not an exact science and that reasonable men might differ over the estimate reached.” S.Rep. No. 1080, 91st Cong., 2d Sess., reprinted in 1970 U.S.Code Cong. & Admin.News 4188, 4201. This observation applies as well to estimates of domestic costs of ships. In 1971, MarAd issued proposed regulations which detailed the information that a shipyard must provide when submitting a CDS application to MarAd. Among other things, the proposed regulations required the shipyard to submit “[a] copy of all the detailed estimate backup sheets upon which the proposed price is based ... [and] historical actual cost labor data, as well as projected labor cost.” JX132 at PO18494. Moreover, the proposed regulations required that “[a]t the conclusion [ ] of negotiations, the shipyard shall certify that the cost or pricing data which it has furnished is current, complete, and accurate.” JX132 at P018495 (emphasis added). These regulations were, however, never enacted. In 1972, MarAd proposed a second set of regulations detailing the information a shipyard must provide to MarAd when submitting an application for a CDS. Like the 1971 regulations, the 1972 regulations required the shipyard to submit historical as well as projected labor costs. Construction Differential Subsidy, 37 Fed.Reg. 6759, 6763 (1972). Instead of the certification requirement contained in the 1971 regulations, the 1972 regulations mandated that the “applicant shall file ... any amendments necessary to keep all information contained or furnished in connection with a pending application current and correct.” Id. (emphasis added). Like the 1971 regulations, the 1972 regulations were never enacted. Regrettably, the Government has been unable to provide any internal documentation from the agency that would illuminate the purpose, significance, or relevance to the bureaucratic process of these proposed changes. MarAd’s Division of Domestic Costs (“the Division”) had the responsibility of reviewing the shipyard’s backup cost details, conducting negotiations with the shipyard, and then determining whether or not to recommend to the Maritime Subsidy Board that the resulting negotiated domestic ship price was fair and reasonable. The Division of Domestic Costs had no authority to accept a proposed domestic price on behalf of MarAd. Only the Subsidy Board had the authority to enter into contracts for the award of CDS’s. Under Title XI of the Act, a ship-purchaser can finance its purchase of an American made ship by selling bonds and using the bonds’ proceeds to pay for the ship’s construction. “The bond[s] [are] guaranteed by the Government, and in the event of default, the bondholders] may pursue the Government for [the bondholders’] claim.” Liberty Maritime Corp. v. United States, 928 F.2d 413, 415 (D.C.Cir.1991). Using this scheme, the Government “encourage[s] private investment in the production and rebuilding of ships [in American shipyards].” Id. B. The Truth in Negotiations Act The Truth in Negotiations Act (“TINA”), whose predecessor statute Congress enacted in 1948 to ensure, inter alia, that the prices the Government pays for goods it buys for the Department of Defense are fair, reasonable, and economical, see 10 U.S.C.A. § 2301(a)(1), is not directly implicated in this case. However, given the absence of case law that discusses what type of cost information the Merchant Marine Act requires a shipyard to provide to MarAd, the parties and we find it useful to examine TINA’s reporting requirements. TINA requires a Government contractor to disclose to the Government only those facts that, as of the date of the agreement on price of a contract (or the price of a contract modification), a prudent buyer or seller would reasonably expect to affect price negotiations significantly. Such term does not include information that is judgmental, but does include the, factual information from which a judgment was derived. 10 U.S.C.A. § 2306a(g) (emphasis added). Thus, TINA only requires a contractor to provide factual information that can be verified to the Government, not judgments based on factual information. See id.; Inter-Con Sec. Systems, Inc., 84-2 BCA 1117, 274 (1984) (TINA case recognizing distinction between fact and judgment). II. Historical Background A. QSD Management In 1964, GD purchased the Quincy Shipyard from Bethlehem Steel, and it became GD’s Quincy Shipyard Division (“QSD”). Initially, QSD worked on Navy contracts for ships and nuclear submarines, but by 1971 QSD had completed most of the work it had on order and was searching for new business. P. Takis Veliotis served as QSD’s General Manager from January 1973, until October 1977, and reported directly to David Lewis, then General Dynamics’ Chairman and Chief Executive Officer. GD required its divisions to prepare operating plans annually. In the fourth quarter of each year, QSD submitted a preliminary operating plan for the following year, which, after a process of review and revision involving both General Dynamics and QSD management, was approved early in the following plan year. QSD’s operating plans projected expenses and revenues for the plan year as well as for three years forward, and each quarter QSD evaluated its performance- by comparison to the plan. GD433-441; JX311. It is plain and undisputed that QSD routinely failed to achieve the targets set in the operating plans. In particular, and critical to the events underlying this lawsuit, QSD significantly underestimated costs at completion in its 1974, 1975, 1976 and 1977 operating plans. GD467; Tr. 3531-38 (Murphy, 2/18); Tr. 2845-47 (Beggs, 2/6). Arthur Andersen & Co. (“Arthur Andersen”) served as GD’s independent outside auditor and performed quarterly reviews of GD’s divisions, including QSD. It also reviewed QSD and all other GD divisions as part of its annual audit of GD’s consolidated financial statements. During the 1970’s, LNG ship construction became the bulk of QSD’s work. JX716 at 9 (Lewis dep.); JX717 at 3-4 (Lewis Dep.); Tr. 506-08 (Whittemore, 12/ 13). After extensive study, QSD chose the spherical Moss-Rosenberg freestanding tank design for its LNG ships and became the only United States licensee of that design. On September 28, 1972, QSD signed contracts to construct three LNG ships, the first it built, for companies related to Burmah Oil (“Burmah”). JX07; JX08; JX09; JX698 at 12198; JX515 at 0554, 0557; Tr. 1023-24 (McGowan, 12/19). QSD’s contracts for the Burmah ships called for the first ship to be delivered in December 1975, the second in March 1976, and the third in March 1977. JX12 at 10412; JX698 at 12180; JX515 at 0557. The contract price for each of the Burmah ships was $89.02 million, subject to certain ■ minor adjustments, and the contracts were “firm fixed-price” contracts that did not provide for any adjustment due to escalation. JX07; JX08; JX09. Each of the purchasers of the Burmah ships applied to MarAd for a CDS, and QSD supplied MarAd with “proposal support” to demonstrate the fairness and reasonableness of the proposed price, JX04; Tr. 1023-24 (McGowan, 12/19). The 1972 proposal support included an estimate of the amount it would cost to build the ships. Most significantly, with respect to labor hours, QSD estimated that it would expend 2.482 million recurring operations labor hours building the first ship, 2.283 million hours building the second, and 2.175 million hours building the third. JX04 at MAR04 0165. Because QSD lacked experience in both building LNG tanks and welding thick-plate aluminum, QSD hired Pittsburgh-Des Moines Steel Company (“PDM”) to build the spheres using the Moss-Rosenberg design. GD72; JX698 at 12179; JX515 at 0556; JX716 at 20-21 (Lewis Dep.); Tr. 2838 (Beggs, 2/6). PDM had a construction facility in Charleston, South Carolina. In 1973 and 1974, QSD entered into contracts to build five additional LNG ships, often called the “Cherokee” ships. MarAd did not subsidize these ships through the CDS program, but it did grant loan guarantees under Title XI of the Merchant Marine Act. Ultimately, the first of these five ships became the third LNG ship built by QSD and the third Burmah ship became the fourth ship in the series. JX698 at 12178; Tr. 2556-57, 2610 (Fisher, 2/4); Tr. 4016 (Murphy, 2/20). PDM encountered substantial difficulty constructing the first LNG ships, and in December 1974, QSD was forced to terminate PDM’s contract, stop work, and take over the Charleston facility. JX698 at 12180; GD96; JX530 at 9469; JX526; Tr. 1020-22 (McGowan, 12/19); Tr. 1079 (McGowan, 12/20). Although QSD invested over $50 million to improve the Charleston facility, it too had substantial difficulties building the spheres. In November 1975, QSD General Manager Veliotis told the GD Board of Directors that the first sphere would be completed by February 1976. By the summer of 1976, however, QSD was not even close to completing the first sphere. On June 30,,1976, MarAd’s on-site construction representative reported that the. situation at Charleston was critical and growing more serious each week. JX61 at 136093; JX549 at 14701; Tr. 1093-94 (McGowan, 12/20). QSD’s problems were not limited to sphere production at Charleston. QSD encountered large increases in the number of labor hours needed to build hulls at Quincy. Moreover, QSD also experienced dramatic increases in its material costs as a result of inflation, volatility of economic indicators, severe shortages in supplies of materials, failure of certain vendors to hon- or firm price contracts, and greatly increased steel scrap rates. JX04 at MAR04-0128; JX196 at 102911; Tr. 3481-82 (Murphy, 2/14); Tr. 3518-22 (Murphy, 2/18; Tr. 2758-59 (Parsons, 2/5). These problems resulted in large cost overruns on the first ships. With virtually every estimate QSD prepared, its projected costs at completion' increased. By May 1975, the estimated cost at completion (“CAC”) of the first ship was $125.2 million. The 1976 operating plan projected a CAC for that ship of $140.6 million, and an August 1976 status report projected a CAC of $155.1 million. JX645 at 121548, 121550; JX750 at 120584; JX63. In 1976, QSD executed agreements to build two additional LNG ships, which were expected to be the ninth and tenth in the series. These ships were often called the “Cherokee VI” and the “Cherokee VII” ships. MarAd did not subsidize these ships and the selling price was negotiated solely in the marketplace. Significantly, QSD and the purchaser agreed on a fixed, delivered price of approximately $155 million per ship. B. The Lachmar Partnership On May 7, 1976, GD, Panhandle Eastern Pipeline Corporation, and Moore McCormack Lines, Inc., acting through wholly-owned subsidiaries, formed the Lachmar partnership (“Lachmar”). Pursuant to certain agreements, QSD assumed the responsibility for constructing the ships, MooreMcCormack for operating them, and Panhandle for shipping the LNG. JX758. As set forth in greater detail below, the construction contracts required QSD to construct two LNG ships substantially in accordance with GD’s then-current standard specification, subject to changes as permitted by the contracts. The base price of March 30, 1976 was $122,538,000 per ship. Ninety percent of the price was subject to escalation according to various formulas set forth in the contract to reflect future increases in the costs of . material and labor. The base contract price also was subject to adjustment to reflect any added cost incurred as the result of changes requested by the partnership or required by regulatory authorities. The construction contracts specified delivery dates for the ships of December 4, 1979, and March 18, 1980. These dates were compatible with the anticipated date of the commencement of deliveries of LNG. JX150 at 101491-92; JX758 at 2-4; JX565 at MAR09 0434. The Lachmar Partnership Agreement contemplated that Lachmar would finance 25% of Lachmar’s actual cost for the two LNG ships with capital contributions from the partners, subject to a cap of $115 million. Lachmar intended to finance the balance of its cost for the LNG ships by issuing and selling Title XI bonds as provided by the Merchant Marine Act. The subsidy applications for these two ships are at the heart of this case. C. The Negotiations with MarAd On June 8, 1976, a meeting was held between representatives of Lachmar and high level MarAd officials. JX156; JX158. The purpose of the meeting was to provide MarAd with an overview of the Lachmar project and to discuss scheduling with Mar-Ad. Veliotis indicated that “detailed cost information would be provided by the shipyard at about the time of the filing of the application. Preparation of this information is currently underway.” JX158 at MAR05 1963; JX156 at 500097-98. On June 22, 1976, Lachmar submitted to MarAd its applications for CDS’s and for Title XI guarantees. On July 19, 1976, representatives of QSD and MarAd met in Washington, D.C. to discuss the proposed domestic purchase price of the Lachmar ships, and more specifically, the escalation clauses of QSD’s construction contracts with Lachmar. At this meeting, QSD submitted to MarAd its “Proposal Support Characteristics Information” (“Proposal Support”). .This document supported a cost breakdown of the $122.5 million base contract price per ship. JX180. On July 22, 1976, MarAd sent QSD a letter requesting further estimating details, quotations, and historical cost information. On August 11, 1976, QSD responded by providing MarAd with a packet of detailed cost estimating information and historical cost data. JX182; JX196. During the negotiations that followed, MarAd was represented primarily by John McGowan who had been working for MarAd sinc.e 1939, and had been Chief of the Division of Domestic Costs since 1967. Up to the time of the negotiation, McGowan had devoted his entire professional life to ship cost estimating and had been involved in all cost estimating undertaken by MarAd between 1967 and 1977 relating to new ship construction. McGowan’s department also controlled progress payments, which involved assessments by MarAd and its representatives of the extent of progress a shipyard had achieved in building a ship. Furthermore, McGowan was involved with change order and mortgage issues, both of which encompassed cost estimating. Tr. 909-10, 976-81 (McGowan, 12/19). McGowan’s principal assistant was David Gessow. Among other things, Gessow took comprehensive notes during the negotiations and compiled a detailed record of MarAd’s review of QSD’s proposal support, the August 11 estimating detail, and other information. QSD was represented at the negotiations by Gary Grimes, George McAndrew, and Robert Renn. JX611/GD403 at 0847; JX618/GD404 at 0844; JX708 at 117-28 (Gessow dep.); Tr. 923 (McGowan, 12/19). In July 1976, MarAd asked the Defense Contract Audit Agency (“DCAA”) to conduct a limited audit consisting of a review of labor and overhead rates at QSD’s Quincy shipyard and Charleston facility to assess whether those rates, both currently and as projected, were reasonable. JX181; Tr. 935-36 (McGowan, 12/19). On September 27, 1976, the DCAA submitted its audit report to MarAd and informed MarAd that the cost or pricing data as submitted by QSD was acceptable as a basis for negotiating a price. JX215. A few days earlier, at a meeting on September 21, MarAd had informed QSD that it considered QSD’s escalation clause unacceptable. MarAd demanded: (1) that QSD remove fixed depreciation from the escalatable base; (2) that QSD substitute index-based escalation for “pass-through” escalation that QSD had proposed for Attachment A items; (3) that QSD eliminate the Quincy and Charleston wage rates as a basis for computing labor escalation, and instead use a national Bureau of Labor Statistics (“BLS”) index; (4) that QSD allocate escalation by element by quarter according to a proposed construction schedule rather than actual construction progress. QSD responded that MarAd was asking it to assume risk, which might require an increase in the base price of the ships, and MarAd acknowledged that a price increase might be necessary. QSD submitted to MarAd a “Supplemental Pricing Summary” dated October 1, 1976, which revised QSD’s proposal support so that it would comply more fully with MarAd’s guidelines, including those regarding escalation. The total base price proposed by QSD in its October 1, 1976 submission was $127.5 million per ship. This proposed base price included a 10% increase in the estimated base cost of attachment A items and an 8.5% increase in the estimated cost of Quincy labor, in order to compensate for the increased risk inherent in MarAd’s proposed escalation provisions. JX221. Ultimately, Lachmar and MarAd both agreed to an increase in the base price of each ship to compensate QSD for the additional risk it would have to assume under MarAd’s escalation clause. JX253, Tr. 931-33 (McGowan, 12/19). Between October 14 and November 18, 1976, QSD and MarAd met repeatedly to discuss the contents of QSD’s proposal support and estimating detail. JX609/GD402; JX708 at 117-18 (Gessow dep.). During a meeting on November 17, 1976, QSD advised MarAd that QSD recently had reached agreement with Lachmar as to the amount by which the base price of the ships would be increased as a result of the substitution of MarAd’s escalation provision for that of QSD. QSD told MarAd that it and Lachmar had agreed to a revised base price of $126.5 million. JX609/GD402 at 0919. After conferring among themselves, MarAd’s representatives told QSD that its price of $126.5 million was about $1 million too high, and that by lowering its price by $1 million, QSD could resolve all the open issues under discussion. JX609/GD402 at 0919; Tr. 1145-48 (McGowan, 12/20). The following day, November 18, 1976, QSD offered to reduce its base price to 125.9 million to compromise all open issues. MarAd's representatives accepted that price. The parties turned their attention to the estimated delivered price and agreed on an estimated delivered price of $155 million per ship. JX609/GD402 at 0920-22; Tr. 1151-55 (McGowan, 12/20). On November 23, 1976, Lachmar and MarAd agreed on an estimated foreign price of $115.5 million per ship. Thus, the resulting CDS rate for the Lachmar ships was 25.48%. GD219; JX374 at 5. A number of matters unrelated to the price of the LNG ships, such as FPC (Federal Power Commission) approval of a related transportation agreement entered into by Lachmar, delayed the Maritime Subsidy Board’s approval of the CDS until July 26, 1977. On that day, the Maritime Subsidy Board approved for the Lachmar ships: (1) the negotiated base price of $125,919,000; (2) the estimated delivered price of $155,000,-000; (3) a foreign price of $115,500,000; and (4) the CDS rate of 25.48%. JX371; JX374. MarAd notified Lachmar and QSD of the Subsidy Board’s approval on that date. III. GD’s Establishment of the Ship Price In late 1974, QSD developed a market price for an LNG ship of $110 million, subject to escalation from October 1974 to the quarter in which the ship would be delivered. JX747 at D008382. The $110 million price initially was linked to a summary level cost estimate as of October 1, 1974, and there is no evidence in the record of any cost estimating detail to support the cost breakdown in the October 1974 estimate. When QSD negotiated the price for two LNG ships with the Lachmar partnership in the spring of 1976, it chose simply to use the October 1974 market selling price of $110 million, with escalation forward from October 1974 to the date of delivery. JX747 at D008382; JX597 at 104539. Before escalating the $110 million price to March 31, 1976 in order to obtain a base price, QSD made two adjustments. First with Lachmar’s approval, it raised the price slightly from $110 million to $111.4 million. Second, it reallocated the entire $111.4 million price into four cost categories: certain identified components known as “Attachment C” items (later called “Attachment A” items) (10%); other material (41%); Quincy labor (42%); and Charleston labor (7%). These categories did not correspond to the cost elements in the October 1974 estimate. At that time, “Charleston labor” was entirely a subcontract (and thus a material) item. JX598 at 104629-30; JX107; JX747 at D008384. In escalating the October 1974 price to the current period, QSD sought to choose an escalation model that would adequately measure the increases in prices that had occurred during that time. The escalation exercise simply sought to preserve whatever margin actually was present in the October, 1974 price, and to ensure that the escalation in prices did not erode that margin. JX75; Tr. 169-71 (Renn, 12/11); Tr. 370-71 (Renn, 12/12). QSD applied different escalation factors to each of the four cost categories to bring the October 1974 selling price forward to the current period. The result was a new April 1, 1976 base price of $121,538,000. JX598 at 104630. This price, which was competitive in the marketplace, pleased the other Lachmar partners, and was less than what the Lachmar partners had estimated it would be. JX700 at 44 (Campbell dep.); Tr. 2548-71 (Fisher, 2/4). During the negotiations between Lachmar and QSD, Lachmar agreed to a further increase in the base price of one million dollars to protect the delivery slots that Lachmar needed. The base price was thus increased to $122.5. JX724 at 36 (Olfson dep.); GD132; GD134 at 133233; JX124 at 101648. The parties also discussed the manner in which the base price would escalate in the future. QSD sought to escalate the entire base price, but the other Lachmar partners wanted 15% of the price to remain unescalated. The parties ultimately compromised that 10% of the base price would remain fixed. JX99; JX124 at 101656 Having reached agreement on the fixed portion of the contract price, the parties allocated the remaining 90% of. the base price back among the four major cost elements of the project, in roughly the same proportion that those cost elements previously had borne to each other. The parties also agreed on the method in which each of these cost elements would escalate in the future. JX124 at 101656-65. IV. Development of Proposal Support In May 1976, after executing the construction contracts with Lachmar, QSD began to assemble evidence to submit to Mar-Ad that the $122.5 million base price was fair and reasonable. JX132; JX760. In seeking to demonstrate to MarAd that the basic cost allocations in the construction contract were reasonable, QSD did not use or provide to the Government the cost estimate it had prepared almost two years earlier, in October, 1974. Rather, QSD assembled evidence of the reasonableness of the price based on the shipyard’s actual construction experience through the first half of 1976. JX180; JX196; JX172; GD27. This exercise was consistent with advice that QSD received from its lawyers. On May 17, 1976, Clay Cook, an attorney for QSD from the firm of Cadwalader, Wickersham & Taft (“Cadwalader”) met with Donald Frye of MarAd. Frye provided Cook with a copy of regulations that Mar-Ad had proposed in 1971, but never enacted, and with a copy of regulations MarAd had proposed in 1972, but also never enacted. JX132. In addition, Rona Goodman, QSD’s in-house counsel, contacted James Rossi of Cadwalader to solicit his suggestions regarding what QSD should submit to MarAd. Rossi essentially recommended that QSD review its previous submissions to MarAd and reconcile those submissions with the price QSD proposed for the Lachmar ships. JX760. Several days later, QSD developed the “LNG Master Planning Assignment,” which had several functions. One part of the assignment was to forecast a cost at completion for ships 1-8 and for ships 9-12 as part of the development of the QSD’s 1977 operating plan. JX133; JX171 at 109720. Second, the document established tasks to be performed in connection with the preparation of the proposal support. One task was to consider different ways to absorb the difference between the assignment’s operating plan forecasts at completion, on the one hand, and the cost allocations set forth in the Lachmar construction contracts on the other. Another task was to prepare the reconciliation suggested by Rossi. JX133; JX171 at 109720. QSD’s Financial Analysis Department (“Financial Analysis”) began assembling cost estimates that supported the negotiated Lachmar base price of $122.5 million. Because QSD was preparing cost estimating detail for MarAd to support the reasonableness of previously selected cost allocations, QSD conducted various mathematical exercises to assess different combinations of estimating parameters that would correspond to the summary level cost allocations in the construction contracts. Tr. 196-97 (Renn, 12/11). V. Truthfulness of the Construction Contract We address at the outset the Government’s contention that the following statement in the construction contracts, copies of which were appended to the Lachmar CDS application, is false: “The Base Contract Price has been determined on the basis of estimates as of March 30, 1976, for costs of work to be performed by subcontractors, materials, machinery, equipment, supplies, labor, and overhead.” The Government suggests that McGowan was misled by this sentence into believing that QSD had prepared its detailed cost estimate before the price was established with Lachmar. JX158; Tr. 991-93 (McGowan, 12/19). It is apparent that the challenged statement did not have the effect, suggested by the Government. McGowan and others at MarAd knew that QSD prepared its detailed cost estimate after QSD negotiated the price with Lachmar. JX158; Tr. 991-93. In addition, on June 8, 1976, Veliotis and representatives of Lachmar met with Robert Blackwell, Tom Pross, who was McGowan’s immediate supervisor, and other senior MarAd officials. Veliotis indicated that detailed cost information would be provided by the shipyard at about the time Lachmar filed its CDS application, and that the preparation of the cost information was currently underway. These facts are reflected in a memorandum concerning the meeting that Pross prepared for the file and sent to McGowan. See JX158. (McGowan, 12/19). Thus, McGowan knew from the memorandum that, notwithstanding that the parties had agreed to the base price of the ships, the shipyard had not yet prepared its detailed cost support. McGowan was not aware of the means by which QSD and Lachmar had arrived at the price of the ship. What he knew was that the price had been determined and the yard was going to develop its proposal support, i.e., its detailed estimate. Tr. 991-93 (McGowan, 12/ 19). Thus, there is no evidence in the record that McGowan or anybody else at Mar-Ad was misled by, or relied in any way upon the statement in the construction contracts challenged by the Government. In any event, the statement in the construction contracts is not false. As set forth above, the $122,538,000 base price was determined on the basis of cost estimates for each of the four categories of work, escalated to March 30, 1976. The construction contracts do not represent that a detailed, “bottoms-up” cost estimate preceded the development of the base price. Tr. 3619-24 (Murphy, 2/18). VI. GD’s Pricing Detail Estimates We observe at the outset that there were in the spring and summer of 1976 a variety of circumstances that affected the viability of estimates being made in connection with the LNG program. For any estimate of costs for a future production event that unfolds sequentially and progressively, such as the construction of an LNG ship, there is a range of outcomes that is reasonably likely. Tr. 3517-18 (Murphy, 2/18); Tr. 1755-56 (Rylander, 1/9). The breadth of the range is dictated by the amount of risk or uncertainty that is present. Tr. 3517-18 (Murphy, 2/18); Tr. 1752, 1820-21 (Rylander, 1/9). In the summer of 1976, when QSD attempted to demonstrate the reasonableness of the Lachmar base price', there was considerable risk and uncertainty concerning QSD’s first LNG ship, to say nothing of the amount of risk and uncertainty concerning the eleventh and twelfth ships. As of 1976, GD stood to lose millions of dollars on the LNG ships then under construction, and had not yet established any record of successful or profitable construction. JX697. As detailed further below, not even the first sphere, much less the first ship, had been completed. Moreover, the prognosis for sphere production at that time was bleak. See JX548. QSD’s effort to construct the hulls at Quincy was no more successful. The shipyard’was experiencing substantial overruns of its initial budget estimates in the number of manhours needed to build the first hulls under construction. Moreover, during this same time frame, QSD was witnessing continuing deterioration in the labor hour estimates at completion for the first ships; as virtually every new estimate was prepared, the number of hours projected at completion increased. Nothing was fixed. GD366 at 14081; JX04 at MAR04 106; JX180 at 15; Tr. 1028-39 (McGowan, 12/19); Tr. 2845-46 (Beggs, 2/6) QSD’s difficulties were exacerbated by a history of labor problems and unrest at the shipyard. Tr. 3526-27 (Murphy, 2/18); Tr. 2835-36 (Beggs, 2/6). Moreover, the construction of LNG ships presented unique and complex problems for the shipbuilding industry. In the summer of 1976, no American shipyard had ever successfully built an LNG ship. Indeed, no LNG ship in the world, the size of that built by QSD had ever yet successfully carried a cargo of LNG. The construction effort undertaken by QSD was new, still untested, and fraught with uncertainty and risk. Tr. 1019 (McGowan, 12/19); Tr. 2537, 2561, 2575-78, 2581 (Fisher, 2/4); Tr. 2479-80, 2484-88 (Glasfeld, 2/4). Finally, the volatility and instability of the national economic environment in the 1970’s made cost estimating difficult. Tr. 3517-18 (Murphy, 2/18). We will now review the details of GD’s component elements in its overall estimate: A. the material cost estimate; B. the sphere labor estimate; C. the operations recurring hours estimate; D. the operations non-recurring hours estimate; E. the engineering hours estimate; and F. the sphere insulation and joinder estimate. A. The Material Cost Estimate There are two basic elements to the material cost estimate that QSD submitted to MarAd to support the reasonableness of the Lachmar price: (1) a base cost estimate as of March 1976; and (2) escalation. JX180. QSD developed bills of material (or estimates of quantity) based on drawings, design specifications, and usage estimates; it obtained quotations from vendors as of March 30, 1976, for all components with a per/ship value of $1,000 or more; it based steel costs on actual March 1976 steel prices; and it based aluminum costs on a current Alcoa quote as of March 30, 1976. JX196 at 102900. QSD proposed two types of escalation of the material base cost. First, with regard to certain components identified as “Attachment A” items, QSD proposed that the actual cost would be passed on to the purchaser, and that QSD would earn no profit since it assumed no risk. Second, QSD proposed that the remainder of the material estimate escalate in accordance with the movement of selected national indices. JX180 at 33-35. MarAd flatly rejected the shipyard’s proposal to pass through the actual costs of the attachment A items, and insisted that all material escalate in accordance with national indices. QSD then requested and received a ten percent increase in the base cost of the attachment A items, to compensate QSD for the possibility, supported by historical evidence, that the national indices would not track adequately increases in the cost of the specialized Attachment A components. This increase was referred to as a “factor for index shortfall.” JX222; GD202; Tr. 3495-502 (Murphy, 2/14). Rylander, the Government’s expert at trial, conceded that he found no misrepresentation with respect to any element of the material base cost estimate, with the exception of the steel scrap rate. Tr. 2079, 2091 (Rylander, 1/28); Tr. 2115 (Rylander, 1/29). Murphy, GD’s expert at trial, testified, and the Court finds, that there was no fraud or misrepresentation in connection with the bills of material, quotations, or any other aspect of the material base cost estimate. Tr. 3471-75 (Murphy, 2/14). Moreover, there was no fraud or misrepresentation in the 25% steel usage factor used in the proposal support. As QSD demonstrated to MarAd, steel scrap rates on LNG ships under construction ranged as high as 30% and the aggregate usage factor for all ships under construction through June 1976 was 25%. Murphy confirmed the accuracy of this data, JX196 at 102910-11; Tr. 3484 (Murphy, 2/14), and we find unpersuasive Rylander’s conclusion that QSD should have used a scrap rate of 15%. In sum, we find that the base material estimate that GD provided to MarAd was fair and reasonable. Apart from the base cost submittal, the only remaining aspect of the material estimate pertains to escalation. Rylander again conceded that he found no fraud or misrepresentation in connection with the shipyard’s escalation proposal. JX180 at 33-35; Tr. 2101 (Rylander, 1/28). Moreover, there also was no fraud or misrepresentation in QSD’s request for a factor for index shortfall on the attachment A items. Murphy reviewed the factual data that QSD submitted in connection with its request and confirmed that the data accurately showed that, in the past, prices for the Attachment A items had risen faster than the general material indices. Rylander conceded that he did not find any false statement in connection with QSD’s submittal. GD202; Tr. 3495-502 (Murphy, 2/14); Tr. 2401-02 (Rylander, 1/30). At trial, the Government suggested that QSD overstated the historical increase in the Attachment A items because some of the earlier prices for those components had been negotiated in 1973 for delivery in 1974. Murphy explained that the prices still can be viewed as 1974 prices, and we so view them. In any event, the evidence showed a 28% index shortfall in the Attachment A items, but QSD only requested a 10% increase in the base price. Tr. 4149-57 (Murphy, 2/21). Although he found no misrepresentation in connection with either the base cost estimate or the escalation proposal, Rylander asserted that the Government had been defrauded by almost $10 million because he found an internal QSD estimate (prepared by Walter Sullivan) of escalated or “at-delivery” material costs that was different from the escalated material estimate agreed to by QSD and MarAd. This internal estimate was incorporated into QSD’s operating plan, which, as we have indicated, was almost always shown by later developments to be way off the mark, reflecting more division boosterism than clear-eyed reality. JX178 at 113410; Tr. 2101-02, 2074-76 (Rylander, 1/28). Rylander engaged in a false comparison. Most importantly, he was unable to establish that the two estimates used the same escalation assumptions. Rylander conceded that he did not know how Sullivan had escalated the material costs in his analysis, and Rylander also conceded that Mar-Ad’s escalation formula would be different. Tr. 2085-86; 2090 (Rylander, 1/28). Rylander’s comparison is also flawed because the Sullivan analysis may not have included certain material cost contingencies that were included in the proposal support and openly disclosed to MarAd. Rylander again conceded that he did not know the extent to which these identified contingencies had been excluded from the Sullivan analysis. Tr. 2092-94 (Rylander, 1/28). At bottom, Rylander acknowledged that' all he did was find a couple of documents that differed, and concluded that there was fraud because the two documents did not contain the same numbers. Moreover, he admitted that he found nothing to establish that, as of November 1976, the shipyards internal forecast was in any way guaranteed. The Government ultimately contends that QSD committed fraud simply by negotiating a contract that provided protection against potential future inflation in the national economy that QSD apparently hoped it could avoid. Indeed, Rylander went so far as to testify that QSD should have requested a downward adjustment in the material estimate because it hoped to experience less inflation than the parties estimated would be measured by the national indices demanded by MarAd. Tr. 2096, 2102 (Rylander, 1/28); Tr. 2401, 2405-06, 2411 (Rylander, 1/30). In light of the rampant inflation that had recently occurred and that QSD had experienced on the LNG ships under construction, QSD did not commit a fraud by requesting an escalatable contract without a downward adjustment in the indices chosen by MarAd. The type of contract dictated by MarAd, in other words, a contract that was not a “cost-plus” contract, specifically permitted a shipyard to earn additional profit if it held costs below the amount MarAd found to be fair and reasonable, just as the shipyard bore the risk of all cost overruns. There was no fraud in QSD’s material estimate. GD468; Tr. 1005-08 (McGowan, 12/19); Tr. 3503 (Murphy, 2/14); Tr. 3521-24 (Murphy, 2/18). If MarAd had accepted QSD’s original escalation proposal, it would have ended up paying $13.2 million less than the amount it ultimately paid. QSD’s original escalation proposal, in which it was willing to pass along its actual incurred cost and forego all profit on the Attachment A items, is inconsistent with the actions of a party intent on defrauding the Government. GD466; Tr. 3503-10 (Murphy, 2/14). The Government seeks additional damages in the material area based on two separate theories that relate to events that occurred after the agreement on price. The first theory is based on another comparison that Rylander made, this time between the escalated material estimate agreed to by QSD and MarAd on the one hand, and a new escalated price estimate that Sullivan prepared in 1977, on the other. This theory suffers from the same infirmities as Rylander’s comparison to the 1976 Sullivan estimate, with the additional problem that the 1977 estimate was never even accepted by QSD management for operating plan purposes. JX327; Tr. 2145-49 (Rylander, 1/29). The Government’s second theory is based on the fact that, well after the parties reached agreement on . price in November 1976, but before the parties signed the construction contracts in July 1977, QSD began securing more favorable material purchase commitments. In many instances, QSD was able to secure commitments to purchase material at prices less than the escalated material estimate agreed to by QSD and MarAd. QSD did not volunteer this fact to MarAd during the months in which execution of the contract was delayed. The delay was for reasons unrelated to the agreement on price. Tr.. 937 (McGowan, 12/19); Tr. 3476-81 (Murphy, 2/14). The record indicates that QSD had no options or precommitments to purchase material prior to the agreement on price in November 1976. Tr. 3490 (Murphy, 2/14); Tr. 2158 (Rylander, 1/29). MarAd obviously was aware that after the agreement on price, QSD was continuing to build LNG ships and was going to generate a tremendous volume of additional data, but there is no evidence that MarAd ever requested any updated information prior to the execution of the contracts. Indeed, McGowan told QSD that if it wanted to go ahead and purchase material in advance of the Contract award, QSD bore all the risk' of doing so. Tr. 1015 (McGowan, 12/19). Moreover, we find that it is a common and prudent business practice to purchase material after agreement on price and before contract execution. Tr. 3476-81 (Murphy, 2/14). . The Government maintains that QSD created an obligation to disclose the 1977 material purchase commitments because of a July 18, 1977 meeting at which McAndrew told McGowan that some of the cost items QSD had proposed had already been or were about to be exceeded. Specifically, McAndrew apparently gave McGowan information relating to the increase in hours on the first ship from 3.8 million hours to 3.95 million hours. These statements were truthful, and there is no evidence that they had anything to do with QSD’s material costs. JX366; Tr. 2320 (Rylander, 1/30). The Government ultimately argues that McAndrew’s statements caused MarAd to decide not to reopen the Lachmar price negotiations despite the potential cancellation of the Cherokee VI and VII ships. However, McAndrew apparently made these statements immediately after a discussion with McGowan about the weighting of work for progress payment purposes, and before a discussion about labor problems at QSD and Veliotis’ attempts to get value for hours worked. McAndrew’s statements about increased labor costs are directly relevant to that latter discussion. JX366. In any event, it does not appear from the memorandum that the statements were made to persuade MarAd not to reopen negotiations in light of the potential cancellation of the Cherokee VI and VII ships. That issue arose later in the meeting; one of the concluding paragraphs of the memorandum notes that “[McGowan] then spoke of some other modifications [to the contracts] ... which had to do with some items [Grimes] and [McGowan] had talked about viz resequencing ships and effect on material and labor costs____” It does not appear from the memorandum that McAndrew even addressed the issue, other than to urge McGowan to “please get [his other modifications] on the table because [the parties] were coming down to the wire.” JX366. In sum, the statements of McAndrew challenged by the Government were not false, and there is no evidence that they were incomplete or misleading in any way in the context in which they were made. JX366. Moreover, the ■ Government has also failed to show its detrimental reliance on McAndrew’s statements. McGowan, who heard the statements, nevertheless continued to believe that a clause should be added to the Lachmar subsidy contracts to provide for an adjustment to the escalation tables in the event the Cherokee ships were cancelled. He strongly urged that position on his superiors, including John Nachtsheim. JX379; Tr. 954-59 (McGowan, 12/19). For its part, QSD was willing to adjust the escalation tables. However, it contended that, if the price of the Lachmar ships was reopened to account for potential cost savings resulting from the cancellation of the Cherokee ships, the parties should consider potential cost increases also resulting from the cancellation (such as those resulting from the fact that fewer ships would absorb the overhead pool, or that the Lachmar ships would experience higher labor hours as a result of moving back up the learning curve). For its part, Lachmar opposed any reopening of the price, because it would not accept early delivery of its LNG ships even if the Cherokee ships were cancelled. JX379; Tr. 943, 954-57 (McGowan, 12/19). Ultimately, Nachtsheim decided, over McGowan’s objection, that the price of the Lachmar ships would not be reopened to account for the cancellation of the Cherokee ships. There is no evidence in the record that Nachtsheim based his decision on any statement by McAndrew that QSD’s labor hours had increased. Tr. 952-59 (McGowan, 12/19). The Government asserts that QSD created an obligation to disclose the 1977 material purchase commitments by reason of a letter that H.M Class of QSD wrote to McGowan on November 29, 1976. Class’ letter stated that “[a]t this time, General Dynamics ... does not anticipate ordering material until the award of construction differential subsidy by the Maritime Administration.” JX257. Class was not involved in the negotiations with MarAd in any way. Moreover, there is no evidence in the record that the statement was false, and there is no evidence that, on November 29, QSD anticipated that the contracts would not be signed until July 1977 and intended at that time to purchase material before the contracts were executed. In addition, McGowan never asked to be told if QSD changed its mind. Tr. 965-66, 969-76 (McGowan, 12/19). Furthermore, the statement by Class had nothing to do with the price of the Lachmar ships and pertained to an unrelated issue of compliance with EEOC regulations GD214/JX779; Tr. 966-70 (McGowan, 12/19). Finally, the Government has failed to prove that McGowan, or anyone else at MarAd, relied on the Class letter in July 1977 when Mar-Ad decided not to reopen the price of the Lachmar ships. B. Sphere Labor Estimate QSD’s sphere production effort began in November 1972 when QSD contracted with PDM, its subcontractor for spheres, to provide three shipsets of spheres. The sphere production work proved to be much larger and more complex than PDM had anticipated. In June 1974, MarAd representative Norm Hammer reported that PDM “continually underestimated the magnitude and complexity of the sphere fabrication work.” In October, 1974, MarAd representative Sam Wolkow observed that the situation at Charleston was “critical and continues to deteriorate and could jeopardize the entire, LNG program.” . JX520; GD 363 at 10519. Faced with total disaster in December 1974 QSD terminated PDM’s contract and stopped work: GD took over the Charleston Facility and decided to attempt to build the spheres itself. Thereafter, QSD embarked on an extensive capita] improvement program at Charleston, with an initial appropriation of $56.8 million. However, despite this infusion of capital, QSD also encountered substantial difficulties building the spheres, and repeatedly failed to meet its cost and schedule projections. For example, in November 1975, Veliotis told the Board of Directors that the first sphere would be completed in three months, by February 1976. On April 20, 1976, Arthur Andersen reported that QSD was then predicting that the first sphere would come out of the jig by the end of April 1976. Neither of these projections proved even remotely accurate. JX61 at 136093; JX106 at 002. With the aid of a Swiss consulting firm named Vevey, QSD began the final welding effort in January 1976. However, Vevey’s initial attempt, in March 1976, at final welding the first sphere soon proved disastrous. One month later, in. April 1976, MarAd noted that although the first sphere was 50% welded, no welds had “been submitted for inspection nor accepted by the Owner or the regulatory agencies.” In fact,.none of the welds were of acceptable quality, and every inch of weld had to be chipped out. This was an extraordinarily painstaking, time consuming, and costly process. QSD had to reweld the sphere three times. GD363 at 10666; Tr. 3050-52 (Tovar, 2/11). By the summer of 1976, the Charleston facility had reached another state of crisis. Its production welders had not completed the final welding of a single seam. In May 1976, MarAd knew that the problems at Charleston were so severe that QSD again was contemplating suspending work until it could review the welding situation. GD363 at 10674; JX698 at 12180-81; GD161. In a June 30, 1976 memorandum, written at the same time QSD prepared its proposal support, Wolkow gave the welding effort a bleak assessment. See JX549. On July 22, 1976, three days after QSD submitted the Proposal Support, MarAd Administrator Robert Blackwell, his deputy Howard Casey (who later chaired the Subsidy Board’s review of the Lachmar CDS award) and Pross visited the Charleston facility and found there were still “no signs of improvement which would support any type of production flow.” GD363 at 10704-05. Starting in the summer of 1976, QSD made a variety of changes at the Charleston facility to try to break the logjam. Rather than relying exclusively on Vevey, QSD looked to other divisions of General Dynamics for expertise in metal working. GD sent employees from the Convair and Ft. Worth Divisions to Charleston to try to improve welding techniques and to solve the production problems. GD179; GD182. The GD team sent to Charleston identified numerous problems, some of which were easily solved, but some of which were intractable. Among the more difficult problems was the shortage of skilled welders. Not only did Charleston’s welding force have little experience in welding aluminum, it also lacked supervisors skilled enough to teach the art. GD152; JX698 at 12195. In August 1976, the Government’s regulatory authorities approved a change in the method QSD used to test the welds on the spheres, and in early September 1976, Wolkow reported that this change in the inspection procedures led to a dramatic improvement in the number of welds that were accepted by the owner’s representative and the regulatory authorities. Wolkow also reported, however, that fourteen major production steps remained to be attempted for the first time, and that “it is anticipated that unexpected problems will develop requiring corrective action and/or revisions.” GD363 at 10718-20. Charleston finally completed the first sphere in December 1976. The sphere consumed over 200,000 manhours, more than twice the number originally estimated. GD262 at D010194; GD397 at 137631; GD398 at 134073. Welding problems did not end with the completion of the first sphere. In fact, it was not until late December 1976 or early January 1977, well after QSD and MarAd reached agreement on price, that QSD submitted a seam to the regulatory bodies for approval that did not require repair. JX543 at 14079. Because of the amount of rework required on the first sphere, QSD discarded that sphere for purposes of applying a learning curve to estimate the sphere labor hours for Lachmar ships. JX180 at 27. QSD began its learning curve with the second sphere as a “theoretical first sphere” at 160,000 hours. Id. From this theoretical first sphere through the 20th sphere, QSD applied a 92% learning curve, which was a composite or weighted average of individual learning curves developed for each of the major areas of sphere construction work: fabrication and subassembly (96%); assembly and disassembly -of jigs (86%); welding assembly (90%); hydrotest and ship-out (95%); dome (estimated by components). Id.; JX196/GD462 at 102898. GD leveled the hours from the 20th to the 60th sphere at the 20th sphere estimate. The resulting estimate for the 11th and 12th ships was 111,584 hours per sphere. JX180 at 27. Using estimating worksheets prepared by McAndrew, Murphy demonstrated convincingly and at length that each component of the sphere labor estimate was reasonably prepared. JX172; Tr. 3422-33 (fabrication and subassembly work); Tr. 3433-40 (assembly and disassembly of jigs); Tr. 3440-49 (welding assembly); Tr. 3449-52 (hydrostatic test and ship-out); Tr. 3453-57 (dome assembly). The Government did not challenge or rebut any of the specific estimates that McAndrew prepared, and the Government failed to show that any of his judgments were unreasonable or inconsistent with the existing factual data. Moreover, QSD’s estimate that the number of sphere hours would level off at the 20th sphere also was reasonable and free of false statements. Tr. 3785-87 .(Murphy 2/19). Most importantly, the judgment that QSD made was fully disclosed to Mar-Ad. JX196 at 102898 In sum, there is abundant evidence that QSD’s sphere labor estimate was prepared in an ordinary, and reasonable manner, and that it was consistent with the existing factual data that was reported ■ in the Charleston facility’s labor progressing system. Tr. 3458 (Murphy, 2/14). We do not find Rylander’s conclusion, that QSD’s sphere labor estimate was fraudulent, persuasive. Rylander almost exclusively based his conclusion on the fact that QSD had a budget for sphere labor of 63,000 hours per ship. Tr. 1920 (Rylander, 1/10). In part, Rylander engaged in a false comparison. As opposed to the QSD budget estimate, the proposal support included the dome assembly as part of sphere labor, even though the dome actually was constructed at Quincy. This item was not included in the budget. JX196 at 102898; JX183 at 104973; Tr. 3418-19 (Murphy, 2/14); Tr. 1843-44 (Rylander, 1/10). More importantly, there is no evidence to support the budget estimate as a benchmark for determining fraud as of the summer of 1976. The budget estimate can be traced back at least to June 1975, soon after QSD took over the Charleston facility and long before the problems and production delays of late 1975 and 1976 occurred. In other words the budget was not based upon data current as of the summer of 1976. On June 13, 1975, Veliotis told the Executive Committee of the Board of Directors that, while cost estimates of the spheres were predicated upon 100,000 manhours per sphere, he was “hopeful” that “through efficiencies” this figure could be reduced to 62,500 manhours per sphere. GD397 at 137631; GD398 at 134073. Rylander acknowledged that he had no idea how the budget was prepared, that he could not demonstrate that there was a reasonable basis for the 63,000 hour budget figure, and that he had found no data, as of the time QSD submitted the proposal support, that a competent cost estimator could use to obtain the 63,000 hour forecast. Tr. 1912-14 (Rylander, 1/10). Moreover, Murphy confirmed that he found nothing to support the budget estimate that would remotely compare to the detailed factual information in JX172 that McAndrew used to prepare the proposal support. Fritz Tovar, the General Manager of the Charleston facility, testified forcefully that it was his view at the time that it would take a “miracle” to reach the budget forecasts, which included a projection that QSD would build the fifth sphere for 75,000 hours. He was under substantial pressure from Veliotis however, to maintain those targets. Tr. 3072-73; 3053 (Tovar, 2/11). Moreover, as noted above, throughout 1975 and 1976 QSD routinely failed to meet virtually every production forecast for the spheres. Tr. 3073 (Tovar, 2/11). The Government also suggests that even if the proposal support was not fraudulent when it was submitted in July 1976, it somehow became fraudulent as a result of progress that was made on the spheres during the autumn of 1976. The Government primarily attributes this progress to the enclosure of the main assembly hall, and claims that QSD alone was aware of the significance of this event. First of all, MarAd was fully aware of every step of progress on the spheres and could have requested a reevaluation of the sphere labor estimate at any time. Pross and others at MarAd r