Tanker Bidding To Be Reopened
Gates Halts Northrop Award

By Dana Hedgpeth
Washington Post Staff Writer
Thursday, July 10, 2008

Defense Secretary Robert M. Gates said yesterday that the Pentagon will hold a new, fast-tracked competition to replace the Air Force's aging fleet of aerial refueling tankers, a move that overturns the previous award of the contract to Northrop Grumman.

The decision follows criticism of the selection process by the Government Accountability Office and underscores the sharp divisions over the contract. The deal to replace the Air Force's entire fleet could be worth up to $100 billion over the next two decades.

Gates said he expects the Pentagon to choose a new winner by the end of the year.

On Feb. 29, the Air Force choose Northrop Grumman and its partner, European Aeronautic Defence and Space, parent of Airbus, to build 179 refueling tankers. In March, Boeing protested the decision, saying it was treated unfairly. The Government Accountability Office agreed, saying the Air Force made "significant errors" in how it conducted the procurement and its mistakes "could have affected the outcome of what was a close competition."

Gates said he had concluded that the contract couldn't be awarded "because of significant issues pointed out" by the GAO.

John Young, defense undersecretary for acquisition, technology and logistics, and officials from the GAO are expected to testify today before the House Armed Services Committee. Some congressional leaders have threatened to withhold funding for the program if the contract doesn't meet with their approval.

The competition has entered the presidential race. The presumptive Republican nominee, Sen. John McCain, has been a sharp critic of Boeing and pushed the Air Force for a competitive process. Some say this benefited Northrop. Democratic candidate Sen. Barack Obama praised the Pentagon yesterday for acting on the GAO's recommendation to reopen the competition.

Gates said the Air Force will not be in charge of the selection process but will oversee the contract once a decision is made. Young, the Pentagon's top weapons buyer, will personally oversee the competition -- a move that is rare and shows the lack of confidence in the Air Force's acquisition team. Young, however, was involved in the selection of Northrop.

The Pentagon said it will revise parts of its request for proposals and address the GAO's criticism of how the Air Force evaluated the bids. The revised request will be issued later this month or in early August.

The Air Force had wanted to have its first plane delivered by 2011 to replace the tankers that Boeing built nearly 50 years ago. Some acquisition experts say the selection could now be delayed and left for the next administration.

"This administration is out of time to do a rigorous, objective award for a major weapons program," said Loren Thompson, a defense consultant at the Lexington Institute. "It would be different if the GAO had identified minor mistakes, but it found major, major problems. There is simply not enough time to fix those problems."

After Northrop's selection, a firestorm erupted on Capitol Hill. The two defense giants have engaged in an unusually public campaign to lobby congressional leaders, trade unions and other industry groups.

Northrop proposed turning the Airbus A330 into a military tanker. Boeing had proposed retrofitting its commercially designed 767 into a tanker.

The two companies said yesterday that they supported Gates's decisions. Northrop said the tanker deal "should be put on a path toward quick closure." Boeing said it welcomed the decision to reopen the competition but was "concerned that a renewed request for proposals may include changes that significantly alter the selection criteria as set forth in the original solicitation." Defense analysts said the company could consider its larger plane, a 777, as a tanker option, depending on what the Air Force says it wants this time.

Congressional leaders are watching the process closely. Rep. Norm Dicks (D-Wash.) said he spoke with Young late yesterday and was alarmed to learn that the Pentagon said it would give extra credit for carrying more fuel. The GAO said the Air Force unfairly gave Northrop extra credit for that before.

"We're very unhappy with this current development," Dicks said. Boeing has manufacturing facilities in Washington state.

Young said last night that "the requirements make clear that the objective is to provide additional fuel" than the existing KC-135 model. "We need to ensure in the RFP [request for proposal] that the language is clear on this matter. We will not grant extra credit for exceeding objective requirements because we should not pay extra taxpayer money for bells and whistles."

Sen. Patty Murray (D-Wash) retracted a statement praising Gates's decision and issued a new one calling it a "biased process and tainted contract."

"The Pentagon is now being absolutely transparent about their Airbus bias," she said. "They are changing the rules at the very end of the game to protect their chosen winner."

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