Murdock Machine, a Utah defense contractor, went bankrupt after the Navy terminated a fixed-price ASROC contract in 1975. The government claimed it was owed money from the contract, but the bankruptcy court rejected this claim. The appeals court upheld the decision, ruling that because the Federal Circuit had already settled the core contract dispute and the government had no realistic chance of collecting, the bankruptcy court didn't need to defer to the Armed Services Board of Contract Appeals.
When a government contract dispute lands in bankruptcy, courts won't automatically send it back to the ASBCA if another court has already decided the main issue—this can speed up bankruptcy resolution but may hurt your leverage.
Fixed-price contracts with government agencies carry serious risk: Murdock's financial collapse started immediately after signing, and the Navy's refusal to convert to cost-reimbursement left the company with no recovery path.