Government Cites Litany of Errors in Tanker Award

By Dana Hedgpeth and Robert O'Harrow Jr.
Washington Post Staff Writers
Thursday, June 26, 2008

The Air Force bungled its biggest procurement deal to spend $40 billion to buy new aerial refueling tankers to replace its aging fleet, federal investigators declared last week. But what wasn't publicly known until yesterday was just how badly they did so.

In a 67-page review, the Government Accountability Office sharply criticized the Air Force for a litany of contracting transgressions, including everything from failing to follow its own evaluation criteria to miscalculating the maintenance costs, size and amount of fuel a plane could carry and holding unfair discussions with one of the bidders.

The competition featured Northrop Grumman and its partner, European Aeronautic Defence and Space, which won the deal Feb. 29, beating out Boeing. It was a bitter loss for Boeing, which built the Air Force's existing tanker nearly 50 years ago. It lodged a protest.

When they announced the winner, Air Force officials said repeatedly that they'd run an "incredibly open and transparent" process that would withstand any legal challenges.

But the GAO report made public yesterday differed about as sharply as could be imagined.

It found that the Air Force's selection process was so misguided that it was "undermined by a number of prejudicial errors that call into question the Air Force's decision."

Along the way, the Air Force seemed to guide Northrop through some pitfalls. In one instance, the Air Force first told Boeing that it had satisfied one set of objectives, but later, after discussions had been closed, decided that it had not. But the Air Force told Northrop about objectives it had not met, allowing that company to change its proposal and meet the requirements.

"It is a fundamental precept of negotiated procurements that discussions, when conducted, must be meaningful, equitable, and not misleading," the GAO said in its assessment. The GAO said the Air Force "treated the firms unequally" in holding discussions with one but not the other.

"This is a damning report," said David Berteau, a senior defense analyst at the Center for Strategic and International Studies. "It is baffling to me: how did so many smart people at high levels at the Pentagon come to the conclusion that the process was so well done and announce a winner, and then we see a GAO report that gives them a black eye in running a smooth, fair procurement process."

The GAO's report is not an evaluation of the merits of the two aircraft; it is essentially a technical critique of the Air Force's acquisition process. It sharply criticized the Air Force for not following the evaluation criteria it set out and said that "judgments in the evaluation of proposals must be reasonable and must bear a rational relationship to the announced criteria."

Top Pentagon and Air Force acquisition officials met with Defense Secretary Robert M. Gates yesterday to discuss how to deal with the contract. The GAO has essentially recommended that the Air Force start the procurement process from scratch.

Boeing's stock closed down $5.15 to $69.64 yesterday.

After the Air Force awarded the contract, which could be worth as much as $100 billion over the next two decades to the Northrop team, Boeing filed a protest with the GAO on March 11, arguing that its aircraft was unfairly evaluated. Congressional leaders, many of whom represent areas where Boeing has major operations, have rallied to get the Air Force to reconsider its decision and have threatened to withhold funding from the tanker program.

"This decision boils down to the fact that the Air Force ran a tanker competition that was neither transparent nor fair," said Sen. Patty Murray (D-Wash.). "This decision is as damning as it is unprecedented. I want to know how the Air Force got this so wrong. Whether it was incompetence or impropriety, clearly the process was completely mishandled."

The GAO said Boeing should be reimbursed for its attorneys fees and the costs of filing the protest.

It was clear in its judgment that the competition was almost a dead heat.

"But for these errors, we believe that Boeing would have had a substantial chance of being selected for award," the document concluded.

© 2008 The Washington Post Company