For most of 8-year-old Johnathan Scott's troubled life, his mother and her attorneys have waged war with the Justice Department over a 40-pound boy who will never walk, can barely talk and has little control over any bodily functions because of mistakes by the doctor who delivered him in a military hospital.

Now, four years after the Reagan Justice Department rejected a $3.5 million settlement in Johnathan's case, the Bush Justice Department has agreed to pay the youngster $8.5 million in one of the largest government settlements of its kind.

This was not a contest over blame: Government attorneys conceded the doctor's negligence during the appeals process. Instead, a youngster with a debilitating form of cerebral palsy became entangled in a Reagan administration effort to control the skyrocketing costs of liability cases by fighting large settlements.

Karen Scott, the boy's mother, said the government's intransigence has not only cost taxpayers millions of dollars extra but has robbed Johnathan of years of therapy critical to his future development.

"Physically, it has hurt him greatly," Scott, 29, said in a telephone interview from her home in suburban Seattle. "He hasn't gotten the therapy he needed. . . . It will take that much longer to undo the damage that has been done."

"We went forward with this case in a manner we believed was appropriate," said Justice Department spokesman Michael Robinson. "We decided the most efficient means of settling this dispute at this time was to enter into the settlement agreement."

While Johnathan is mentally alert, his mind is trapped in a body that allows him to utter only a few words, denies him use of his legs and gives him only minimal control of his arms. In the past few years, his body has begun to deteriorate, his hips becoming dislodged from their sockets and his muscles tightening to the point that pulling his arms and legs into clothing has become difficult, according to his mother.

Scott, who has two other children, is divorced from Johnathan's father and said she has been unable to hold a job outside the home because of the constant care Johnathan requires. She has relied on her parents and state welfare programs for financial support.

But two weeks ago, after six years of legal warfare, the government sent Johnathan's attorney's nine checks totalling $8.5 million. Most of the money was awarded to Johnathan for his lifetime care, but $300,000 was awarded to his mother and $50,000 to his father for "a damaged parent/child relationship."

The case, which has consumed years of Karen Scott's life, has left her angry at her government, beginning with the military hospital at Elmendorf Air Force Base near Anchorage, where Johnathan's father, David, was assigned as an Army police officer.

The courts have ruled that a 70-year-old retired civilian doctor hired by the short-staffed military hospital misdiagnosed Scott's prenatal problems and performed unnecessary surgery on her. She developed an infection after the surgery, and Johnathan was born six weeks premature. He suffered oxygen deprivation beginning two weeks before the birth, and that killed some of his brain cells, leaving him with a form of cerebral palsy called spastic quadriplegia.

"They {the government} have ruined my whole family's life," said Scott. "When you know this child should not have been like this, it is something you never come to terms with. Money doesn't compensate for the feelings you have to go through."

But Scott added that the settlement "will definitely give me some options with my life and will supply Johnathan with everything he needs."

And that, she said, will mean dramatic changes in the lives of every member of the Scott family.

"It won't be such a hardship every hour of every day," said Scott.

She will move Johnathan and his two siblings out of their cramped mobile home into a new, custom-built house with extra-wide hallways for wheelchair accessibility and a bathroom designed especially for Johnathan's handicaps. She also will have a van equipped with a wheelchair lift to transport him.

Because of the family's strained finances, Johnathan's has been limited to two 45-minute physical-therapy sessions and one or two 30-minute speech-therapy meetings a week through the public school system. Now Scott plans to enroll him in sophisticated private programs, where he will receive daily therapy.

He also will now have a home computer equipped for the needs of a boy who can use only his head and his clenched fists to hit switches and buttons. Doctors believe that the computer will vastly expand Johnathan's ability to communicate, according to his mother.

And perhaps most critical to the daily routine of Karen Scott, the settlement funds will allow her to hire a full-time attendant to help care for her son at home and assist him at school. Scott said she hopes to take college-level business courses and eventually find a part-time job.

"Her life was put on hold since this child was born," said Carl A. Taylor Lopez, one of the attorneys who represented Scott.

The money will be administered through a trust fund established at a local bank with an advisory board, including an attorney, health authority and Karen Scott, Lopez said.

The Scotts filed a $35 million lawsuit against the government in 1984, when Johnathan was about 2 years old. Weeks before a trial was scheduled to begin in 1986, Justice Department attorneys and the Scotts agreed to settle the case for $3.5 million.

But the settlement was vetoed by Assistant Attorney General Richard K. Willard, who, as chief of the department's civil division, had been designated the administration's point man in trying to combat the so-called liability crisis. Willard led the administration task force that cited huge damage awards as a major cause of increasing liability insurance costs and proposed stop-gap measures, including limiting punitive damage awards and payments for pain and suffering.

"That was a different president and a different attorney general ago," said one Bush administration official. In addition, the official said, it had become evident that the courts were prepared to award Johnathan even more than the $8.5 million settlement figure.

A U.S. district judge in Tacoma, Wash., tried the case without a jury and in 1986 awarded the boy and his family $11.1 million.

In appealing the case, the government dropped arguments questioning the negligence of the doctor and instead concentrated on attacking the methods used to calculate the financial award.

An appeals court upheld most of the lower court's ruling but recommended further work on the formulas used to determine the award. Two weeks ago, with a second trial hearing looming, the Justice Department agreed to settle the case.

"I don't think I will ever get over the anger," said Karen Scott. "We should have a normal family. He should be out in the yard playing with his 11-year-old brother. When you prove medical malpractice to the extent this was, you have to learn to deal with it . . . but it never leaves your mind."