Pentagon Postpones Tanker Competition

By Dana Hedgpeth
Washington Post Staff Writer
Thursday, September 11, 2008

The Pentagon yesterday postponed the controversial $40 billion competition to build an aerial refueling tanker for the Air Force, conceding a breakdown in the management of the contest and postponing the politically charged decision until the next presidential administration.

The delay came after months of scrutiny and unusually visible pressure from congressional leaders, trade groups and executives at the two major defense companies vying for the award, Boeing and Northrop Grumman. At stake were thousands of jobs and work that could be worth $100 billion in the coming decades as the Air Force replaces a tanker fleet in which some planes are nearly a half-century old.

Defense Secretary Robert M. Gates had pushed to award the contract by the end of the year but said yesterday that it was impossible.

"Over the past seven years, the process has become enormously complex and emotional -- in no small part because of mistakes and missteps along the way by the Department of Defense," Gates said before the House Armed Services Committee. "It is my judgment that in the time remaining to us, we can no longer complete a competition that would be viewed as fair and objective in this highly charged environment."

He said having a "cooling-off period will allow the next administration to review objectively the military requirements and craft a new acquisition strategy for the KC-X."

It's the latest twist in a troubled saga. In 2003, the Air Force agreed to lease a new fleet of tankers from Boeing. But that deal got caught up in a procurement scandal that sent a high-ranking Pentagon official and a top Boeing executive to prison.

The Air Force then launched what it said would be an exemplary competition for a contract to build 179 of the planes. In February of this year, after lengthy deliberations, the award went to Northrop and its partner, European Aeronautic Defence and Space, the parent company of Boeing's rival, Airbus.

Boeing protested, saying it had been treated unfairly, and the Government Accountability Office investigated and agreed. The Pentagon decided to re-bid the deal in July.

In an unusual move, Gates took the power to run the competition away from the Air Force and gave it to John Young, the Pentagon's top weapons buyer.

Last month, Boeing, which built the existing tankers 50 years ago, objected to Gates's tight timetable and appealed to Deputy Defense Secretary Gordon England that it needed more time to pitch a new, larger tanker -- essentially a gas station in the sky -- that it thought the Air Force wanted. Boeing threatened to pull out of the competition entirely if it didn't get more time.

Analysts and former Pentagon officials say that Gates's decision yesterday raises questions of just how troubled the Pentagon's procurement process is and that it could cause delays in other major procurements, including new search and rescue helicopters.

Winslow Wheeler, director of the Straus Military Reform Project at the Center for Defense Information, said the tanker contract was a "microcosm of the disaster" in the Pentagon's acquisitions process. "We're now in phase three of an ongoing saga where at each phase, the Air Force and its DOD supervisors have badly screwed things up," he said.

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