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Pentagon Opts To Reopen Bidding On Air Tanker Contract

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By BILLY HOUSE

The Tampa Tribune

Published: July 10, 2008

WASHINGTON - The Department of Defense is reopening the bitter competition for a $35 billion military aircraft program that likely would include replacing some of the 16 aging KC-135 tankers now flown out of MacDill Air Force Base in Tampa.

In doing so, the Pentagon is agreeing with the findings of congressional auditors in June that a decision by the Air Force to award the tanker contract to the rival of Chicago-based Boeing Co. was flawed.

"The contract cannot be awarded at present because of significant issues pointed out by the Government Accountability Office," Defense Secretary Robert Gates said Wednesday.

In its findings last month, the GAO said the Air Force had made significant errors in awarding the contract to build 179 aerial refueling tankers to Northrop Grumman Corp. and its partner, the European Aeronautic Defence and Space Co., parent company of French aircraft maker Airbus, over Boeing.

Gates also said top oversight of the new contract-awarding process will be handled by John J. Young Jr., the undersecretary of defense for acquisition - not the Air Force.

In all, Gates noted the "GAO sustained eight of the slightly more than 100 issues protested with this contract."

"We will address all of these in the new solicitation," Gates said. He said the competition is not starting from scratch, but that bidders will be asked to revise their proposals to meet the GAO's concerns in an expedited process geared to a December conclusion.

"There will be a whole new team involved in the process," said Rep. C.W. Bill Young of Indian Shores, the ranking Republican on the House Appropriations Defense Subcommittee, after a briefing he received on the decision.

Boeing Protested Contract Choice

The GAO review came after Boeing and its supporters argued the contract was awarded improperly and that the bidding process was unfair. Boeing mounted a major campaign to sway support, saying the project will cost U.S. jobs and put national security at risk.

Young said he agreed that the Defense Department's decision to shop the contract is "the right thing to do," given the problems uncovered by the GAO with the original process.

He also said he was concerned about the delay to the program, but "it needs to be done right; we need to get the best tanker at a cost-effective price."

Gates said Northrop Grumman and Boeing will be asked to submit new proposals and that a final decision on awarding the contract will be made in December.

It is uncertain how the decision will affect companies in Florida, Alabama and other states expecting some of the Northrop subcontracting work.

Northrop had said parts of the plane will be made overseas, but 60 percent of the tanker was to be American-made, through Northrop's U.S. suppliers in Florida, Alabama and 47 other states.

In all, it said, 230 U.S. companies and as many as 48,000 U.S. jobs will be involved in the work.

For instance, the new tankers, which may replace some of the 16 aging KC-135 tankers now flown out of MacDill Air Force Base in Tampa, could mean $500 million a year for Florida companies. That includes four subcontractors in the Tampa Bay area. In all, it could create up to 2,000 new jobs in Florida.

Young said he thinks Boeing's proposal would have brought in Tampa Bay area contractors, as well. But he said it is impossible to determine how the Tampa area could be affected with the contract being put out for new bids.

'Misleading And Unequal'

In recommending that the contract be offered up again, the GAO found:

•The Air Force, in awarding the contract, did not assess the merits of the competing proposals according to the criteria it listed as necessary to meet.

•The Air Force conducted "misleading and unequal" discussions with Boeing by informing Boeing that it had fully satisfied a key requirement but later determining the company had only partially done so.

•The record did not demonstrate "the reasonableness" of the Air Force's decision that Northrop Grumman's proposed refueling tanker could refuel all current Air Force fixed-wing tanker-compatible aircraft.

•The Air Force's evaluation of military construction costs in calculating the proposals was unreasonable.

•The Air Force improperly increased Boeing's estimated nonrecurring engineering costs.

"We are reviewing the decision to ensure the recompetition will provide both companies a fair opportunity to present the strengths of their proposals," Northrop Grumman officials said in a statement. "The United States Air Force has already picked the best tanker, and we are confident that it will do so again."

Congressional critics have threatened to kill the deal if any evidence was found that Boeing was treated unfairly. House and Senate committees that set the budgets for the Defense Department and Air Force say they can turn off the funding spigot for the contract.

In a statement, Boeing said it welcomed Gates' decision.

"It's encouraging that the Defense Department intends to take steps to ensure a fair and open competition that, among other things, fully accounts for life-cycle costs, such as fuel, to provide the most capable tanker at the best value for the American taxpayer," the statement added.

Reporter Billy House can be reached at bhouse@tampatrib.

com or at (202) 662-7673.

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