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pricing of all the aircraft to be manufactured and delivered over
the contract’s multiyear term.
It should be noted that respondent did not argue that the
Air Force's right to terminate fully or partially 2034 for its
convenience rendered the contract severable. In that regard, all
Government contracts, irrespective of their timespan (including
multiyear contracts), are subject to termination for the
Government's convenience or for a party's default. Under
termination conditions, petitioner would be compensated based on
prescribed terms set out in the contract and established legal
requirements.15
In this regard, all 4 program years under Contract 2034 were
partially funded from inception as to long-lead funding and EOQ
items. Respondent's position does not adequately explain or
account for the long-term funding aspects of Contract 2034.
Additionally, as of November 1, 1984, Congress had fully funded
Contract 2034, and cancellation for lack of funding was no longer
a factor. The question of severance of Contract 2034 into four
contracts by program year would not have become possible for tax
reporting purposes until petitioner filed its 1984 tax return.
Due to the long-term nature of aircraft production, the 1982
15 Petitioner also points out that because the 1982 and
1983 program years were funded simultaneously in P00 80,
respondent’s increase-in-order theory should logically result in
severance into three contracts, not four as respondent had
determined.
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