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GAO Finds Flaws, Says Reconsider $35 Billion Air Force Deal

June 18, 2008

By Billy House, Tampa Tribune, Fla.

Jun. 18–WASHINGTON — Congressional auditors are recommending that a controversial Air Force decision to award a $35 billion military aircraft program to the rival of Chicago-based Boeing Co. be reconsidered.

“Our review of the record led us to conclude that the Air Force has made a number of significant errors that could have affected the outcome of what was a close competition between Boeing and Northrop Grumman,” states the Government Accountability Office’s ruling, released today.

“We therefore sustain Boeing’s protest,” the GAO says.

Northrop Grumman Corp. and its partner, the European Aeronautic Defence and Space Co., parent of French aircraft maker Airbus, beat out Boeing, winning the order from the Air Force three months ago.

That decision sparked a “Buy American” backlash in Congress and elsewhere. Some critics also questioned the fairness of the bidding process, and the handing to a foreign company such a substantial role in the huge military project.

The GAO’s findings add uncertainty to the contract to build 179 aerial refueling tankers. The contract was seen as growing possibly to $100 billion if the Air Force places additional orders. It is uncertain how the decision would affect Florida companies expecting some of the Northrop subcontracting work.

“We recommend that the Air Force reopen discussions with the offerors, obtain revised proposals, re-evaluate the revised proposals, and make a new source selection decision,” the GAO wrote.

“I just got handed this,” said Rep. C.W. Bill Young of Indian Shores, the ranking Republican on the House Appropriations Defense subcommittee.

“This is going to further delay the acquisition of the tankers, which we have needed for years,” Young said.

Specifically, 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.

— The Air Force conducted “misleading and unequal” discussions with Boeing by informing Boeing that it had fully satisfied a key requirement and 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.

The Air Force is not bound by the GAO review, but it is likely to give critics of the Air Force’s decision more ammunition to unravel the deal.

Boeing argued the contract was awarded improperly and has asked the GAO to look into whether the bidding process was fair. Boeing has mounted a major campaign to sway support, saying the project will cost American jobs and put national security at risk.

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 others states.

In all, it said 230 U.S. companies and as many as 48,000 U.S. jobs would 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 jobs in Florida.

Young said he believes Boeing’s proposal would have brought in Tampa Bay area contractors as well.

Congressional critics have threatened to kill the deal if any evidence is 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.

“I cannot believe that in the most highly scrutinized procurement in the history of the United States Air Force, the GAO found so many errors,” said Sen. Richard Shelby, a Republican from Alabama. “The fact that the Air Force will likely have to go back to square one on the warfighters’ No. 1 priority is very disturbing.”

Reporter Billy House can be reached at bhouse@tampatrib.com at 1 (202) 662-7673.

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