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The Pentagon's Procurement Problem
Flawed Tanker Contract Is Part of Persistent Pattern, Analysts Say

By Dana Hedgpeth and Robert O'Harrow Jr.
Washington Post Staff Writers
Friday, June 20, 2008

The giant award for a new refueling tanker was going to give the Air Force a chance to redeem itself. The service set out two years ago to create a demonstrably clear and straightforward process to avoid past missteps in replacing its aging aircraft fleet.

But something went wrong. Government auditors criticized the Air Force's process this week, essentially saying that the service should scrap the $40 billion deal that was awarded to Boeing competitor Northrop Grumman and its partner, European Aeronautic Defence and Space, the parent of Airbus.

The contract is an example of persistent overall problems with the way the Pentagon buys weapons, procurement specialists and government watchdogs say. As the government cedes more of its work to private companies and reduces the size of the workforce that oversees contracts, such problems are growing, according to a stream of government audits and reports.

"This is part of a pattern," said Winslow Wheeler, director of the Straus Military Reform Project at the Center for Defense Information. "In the military services, there's a sentiment that 'we can do whatever we want because no one serious is looking over our shoulder.' "

Federal auditors in recent years have documented that major weapons system programs are routinely delivered late and over budget. According to a congressional review, about half of all federal contracts in recent years have been awarded without full and open competition, about triple the proportion in 2000.

In testimony to a House panel in April, Government Accountability Office officials said cost overruns and missed deadlines are getting worse. Although the average delivery delay in 2000 was 16 months, they said, the average delay was 21 months last year. The estimated total acquisition cost growth rose from $42 billion in 2000 to $295 billion last year.

A recent report by the Defense Department Inspector General's Office said the "DoD acquisition and contracting community continues to face the stress of managing the increasing Defense budget with a smaller and less capable workforce."

The tanker program already had provided a case study in how not to award a major contract. In 2003, the Air Force decided to lease tankers from Boeing for $20 billion. But investigators later determined that the official who awarded the contract favored Boeing because she was seeking a job there. That official and Boeing's chief financial officer at the time both went to prison. In the wake of that debacle, the new competition was set up to be exemplary.

The Air Force met with congressional leaders to explain how they were being especially careful to be transparent. The service engaged experts on buying large weapons systems from other parts of the military to ensure that its procurement process would stand up to any questions or legal challenges.

"I can't stress enough what an incredibly open and transparent and rigorous first selection we have gone through," Sue C. Payton, assistant secretary of acquisition for the Air Force, told reporters Feb. 29 when Northrop's team was announced the winner. "We have been extremely open and transparent. We have had a very thorough review of what we're doing. We've got it nailed, and I don't see any relationship to what has gone on in the past at all."

The deal to build 179 aerial refueling aircraft could be worth as much as $100 billion over the next two decades.

Boeing, which began building the current fleet of refueling tankers 50 years ago, filed a protest with the GAO on March 11, saying its aircraft had been judged unfairly. On Wednesday, the agency agreed, saying the Air Force had made "significant errors that could have affected the outcome of what was a close competition between Boeing and Northrop."

The Air Force broke its procurement rules, according to a seven-point summary of the GAO's 69-page report. For starters, the GAO found that Air Force officials didn't follow the technical parameters set out in the solicitation for proposals.

The Air Force miscalculated the overall costs of the Boeing proposal, the report said. The service also was found to have given Northrop's plane too much credit for size, capabilities or qualities that went beyond what the Air Force had said it needed.

In the end, the Air Force didn't show that it had adequately determined that Northrop's plane "could refuel all current Air Force fixed-wing tanker-compatible receiving aircraft in accordance with current Air Force procedures, as required by the solicitation."

Richard Aboulafia, a defense analyst at the Teal Group in Fairfax, said it is rare for the GAO to uphold a protest and issue such a harsh rebuke of the Pentagon.

"We've not seen a document as scorching as this from an independent, nonpolitical agency," he said. "They are essentially saying there is either incompetency in the Air Force or there was political interference that led them to bend over backwards to benefit one competitor because they feared the power of the purse strings. Either way, the Air Force procurement system has gone horribly, horribly wrong."

Wheeler praised congressional calls for a review of what happened. He said it will be crucial to get investigators who are "demonstrably objective" and unfettered from influence by lawmakers, Capitol Hill staffers and the companies themselves.

Wheeler said that based on his reading of the GAO findings, it is possible that the Air Force's procurement team was urged or told to steer the award to Northrop and away from Boeing.

"It appears that the Air Force was, at minimum, trying to overcompensate because of the perception they were too cozy with Boeing," said Nick Schwellenbach, national security investigator at the Project on Government Oversight, a nonpartisan group in the District that tracks federal procurement.

"Take what the Air Force has been saying publicly the last four or five months and contrast that with what the GAO found, and there's almost complete discord," Schwellenbach said.

Staff researcher Julie Tate contributed to this report.

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