June 18, 2008

GAO Sides With Boeing

WASHINGTON -- The Government Accountability Office Wednesday sustained Boeing's protest of the Air Force's awarding of the multi-billion-dollar refueling tanker contract to Northrop Grumman.

Boeing's St. Louis-based defense business had challenged the decision, which had sparked widespread outrage on Capitol Hill and among unions representing Boeing's workers, which objected to the fact that much of Northrop's work would be performed overseas by its European partner EADS.

"Our review of the record led us to conclude that the Air Force had made a number of significant errors that could have affected the outcome of what was a close competition between Boeing and Northrop Grumman," said Michael Golden, the GAO's managing associate general counsel for procurement law. "We therefore sustained Boeing's protest."

The GAO recommended that the Air Force reopen discussions with the bidders, get revised proposals, re-evaluate them and make a new decision.

A letter of the finding will be sent to the Air Force, which has 60 days to answer.

The GAO's finding is a recommendation, but its recommendations are almost always followed by the agency in question.

Boeing hailed the news, but Northrop Grumman stood by its argument that its plane was better.

"We welcome and support today's ruling by the GAO fully sustaining the grounds of our protest," Mark McGraw, Boeing's vice president for tanker programs said in a statement. "We appreciate the professionalism and diligence the GAO showed in its review of the KC-X acquisition process. We look forward to working with the Air Force on next steps in this critical procurement for our warfighters."

Northrop Grumman said it respects the GAO's work.

"We continue to believe that Northrop Grumman offered the most modern and capable tanker for our men and women in uniform. We will review the GAO findings before commenting further," Randy Belote, vice president of corporate & international communications for Northrop Grumman, said in a statement.


The GAO criticized the Air Force sharply on seven points, including how it measured costs of the planes and what it told the companies about what it was looking for. The harsh critique will give Boeing supporters lots of ammunition to press the Air Force to re-bid the contract, several analysts said.

"Only one in four protests get upheld," said Richard Aboulafia, an aerospace analyst with The Teal Group in Fairfax, Va. "And of those, very few get language like this."

But that doesn't mean a re-compete will be a slam-dunk for Boeing. The GAO specifically said it was not criticizing the plane so much as the decision-making process, and any new competition could well be performed next year by new Air Force leadership under a new presidential administration.

"This is an opportunity for Boeing to be treated fairly," said Loren Thompson, a defense analyst with The Lexington Group. "But it's no guarantee that they'll win."