From Aviation Week

 

GAO Sustains Boeing Tanker Protest

Jun 18, 2008

By Michael Bruno

 

Congressional auditors today handed Boeing some salvation and sided with the U.S. behemoth's protest against a U.S. Air Force award over an aerial refueling tanker to an international team led by Northrop Grumman and EADS.

 

The Government Accountability Office, in citing several problems with the USAF's decision-making process, called for the embattled armed service to re-open talks with the competing industry teams and then make a new source selection.

 

"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," GAO said in its June 18 announcement. "We also denied a number of Boeing's challenges to the award to Northrop Grumman, because we found that the record did not provide us with a basis to conclude that the agency had violated the legal requirements with respect to those challenges."

 

GAO's decisions appears surprising to many observers and will complicate the USAF's already tortured attempt to replace its aging tanker fleet. Whether the Air Force follows GAO's advice has yet to be seen, but the service is aware of the recommendation.

 

"The Air Force is aware of the Government Accountability Office's report and will review the findings & recommendations," an initial response said. "We will release a statement this afternoon."

 

Boeing's response was not as equivocal. "We welcome and support today's ruling by the GAO fully supporting the grounds of our protest," said Mark McGraw, Boeing vice president for tanker programs. "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's said: "We respect the GAO's work in analyzing the Air Force's tanker acquisition process. 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," according to Randy Belote, Northrop vice president of corporate & international communications.

 

Reaction from Capitol Hill, where news started to leak mid-day, was swift from Boeing supporters. "Today, the GAO sustained Boeing's protest and confirmed what I have been saying for months - the Air Force's tanker decision was fundamentally flawed," said Washington Sen. Patty Murray (D). "I am not surprised that the GAO identified significant errors in the selection process. The Air Force bought a tanker that doesn't meet their needs and has been waging a PR campaign ever since."

 

The chairman of the Senate Armed Services Committee, Carl Levin (D-Mich.), also weighed in and called for more investigation into the USAF's decision-making process. "The GAO's decision in the tanker protest reveals serious errors in the Air Force's handling of this critically important competition. We now need not only a new full, fair and open competition in compliance with the GAO recommendations, but also a thorough review of - and accountability for - the process that produced such a flawed result," Levin said.

 

This story updated from original file. A three-page statement by GAO summarizing its decision is available here (pdf)

 

[CV32: You could smell this one coming, especially after the USAF basically admitted last week to coming up with a wrong calculation for life cycle costs, although it argued the end result was minimal in difference. Get yourself some popcorn ... ]

Wow, still I didn't expect the GAO to actually take the step.

 

Who is tracking the over/under for the new contract award

A synopsis of GAO's findings, from Aviation Week's ARES Blog

 

"1 - the Air Force did not assess the relative merits of the proposals in accordance with the evaluation criteria identified in the solicitation.

 

2 - using the fact that Northrop's larger KC-30 exceeded the aerial refuelling requirement as a "key discriminator" violated the provision that no consideration would be given to exceeding objectives.

 

3 - the "reasonableness" of the determination that the KC-30 could refuel all current USAF fixed-wing aircraft was not demonstrated.

 

4 - the Air Force "conducted misleading and unequal discussions with Boeing," first saying it had satisfied a key objective, then determining it was only partially met, but not telling Boeing of the change in assessment.

 

5 - the Air Force "unreasonably determined" that Northrop's refusal to agree to support setting up an organic depot capability within two years of delivery was an "administrative oversight".

 

6 - the Air Force made errors calculating the most probable life-cycle cost that, when corrected, made Boeing, and not Northrop, the lowest bidder.

 

7 - the Air Force "improperly increased" Boeing's estimated development costs for the KC-767A when it had not found the costs to be unrealistically low."

Analysis from Defense Industry Daily

 

The GAO does not have the power to make the USAF comply with this recommendation. If the service wished, it could submit a written response within 60 days saying that it was going ahead as planned, and ignoring the ruling.

 

This deal’s size and stakes, however, ensured that any adverse ruling from the GAO would touch off a Congressional firestorm. It is that Congressional pressure, expressed bluntly via appropriations bills and program funding control, that is likely to decide the fate of the USA’s future aerial tanker fleet.

 

A GAO ruling that the process had been conducted to spec would have made Congressional opposition to the USAF’s choice very difficult. Difficult for domestic reasons, because there are large constituencies on each side, and interference with a certified process would be seen as blatant corruption. Difficult, too, because of the international response if American politicians worked to overturn a huge decision that benefited a European firm, even though it was certified as fair by an independent party. Retaliation has already been threatened in Europe, leading Lockheed Martin’s CEO to make a speech recently that offered support for the Airbus win.

 

The USAF had hoped to structure their RFP process in order to achieve that outcome, and worked hard toward that goal. The June 18/08 ruling indicates that they failed. That failure gives Boeing’s backers, which include home state senator and presidential candidate Barrack Obama, a lot of ammunition. A re-compete per the GAO’s recommendations is almost certainly in the cards, and more overt pressures from American politicians must also be expected.

 

Northrop Grumman and its supporters will not be idle during this time, of course. They have their own industrial beneficiaries scattered throughout the country, and political supporters at the state level have shown themselves to be very effective and well organized. Now that the initial win has created strong expectations in all of these communities, a reversal of the award decision would come with real political costs.

 

Which is why the most likely political decision would be a split of the KC-X order between the 2 manufacturers. As DID said when the contract was first awarded:

 

“A split-buy is the most likely proposal in the political arena, given… past tendencies in Congress and the political leanings of the states most affected, which tend to lean more toward the Democratic Party in Boeing’s case, and more toward the Republican Party in EADS/Northrop’s case. On the other hand, the USAF strenuously opposes a split buy, both for reasons of delay (estimated at 18-24 months) and of future operations and maintenance inefficiencies.”

 

This gives everybody something – except the US Air Force. They may end up having to decide whether the delays and issues created by a split buy would be less difficult than the delays and issues created by a bruising battle with large swathes of the US Congress, and strained relations with key USAF contractors, no matter what it decides.

 

The terms and changes in the revised RFP will offer an early indication of the USAF’s choice. Those choices will, in turn, have consequences.

 

Depending on the USAF’s alterations to the RFP, Boeing may choose to make changes of its own. One can be sure that Boeing will pay far closer attention to platform selection in a re-compete, after the rude awakening in the first round that their assumptions about their customer were dead wrong. Several options are open, including using the stretched 767-300 as their base platform. Boeing could also use their 777 if it appears that additional range, fuel, and capacity will receive enough weighting in the re-compete. This would give it a contender that can out-range and out-carry the A330, though the proposal’s design risk would rise because the KC-767 is now a delivered product, while a KC-777 would truly be a “paper airplane.”

 

Regardless of Boeing’s platform decisions, however, a full court press can be expected on the political front, to keep the pressure on.

 

Leaving the US Air Force caught between a political rock, and a hard place.

From Defense Aerospace

 

Tanker Contract: The Ball's in the Air Force's Court

(Source: Project On Government Oversight blog; posted June 19, 2008)

 

What's the Air Force's move? Yesterday, the Government Accountability Office (GAO) just upheld Boeing's protest of the Air Force's refueling tanker contract award to a partnership between Los Angeles-based Northrop Grumman and the European Aeronautic Defence and Space Company (EADS; includes Boeing's number one commercial rival, Airbus).

 

First, the Air Force was recently decapitated: Secretary Michael Wynne and Chief of Staff Buzz Moseley were canned several weeks ago by Defense Secretary Bob Gates. An experienced team with particular sensitivities to the tanker issue is on route to replace them, but they're jumping into a political firestorm.

 

Second, the GAO's recommendations are not binding. The Air Force does not have to do anything. But it will. Why? Because Boeing's congressional allies will crucify the already heavily-bashed military service if it thumbs its nose at the GAO's findings which conclude that the acquisition process was riddled with errors that misled Boeing.

 

Also, the House Armed Services Committee has included a provision in its version of the defense authorization bill that would mandate consideration of the industrial base when choosing the winner of competitions -- clearly this was written with the Air Force's tanker decision in mind. Whether or not this makes it into the final version of the bill sent to the President is uncertain.

 

Without a doubt it is an attempt to exercise pressure on Defense Department leaders to go with Boeing. Boeing public relations and lobbyists are on overdrive and will utilize the GAO's ruling to the max. The Air Force can't wiggle out of this without some sort of response.

 

So what will the Air Force do? My bet is that the Air Force will try - and may not succeed - in narrowing the scope of a "recompetition" as much as possible. That would involve trying to simply "clarify" the parts of the evaluation of which the GAO found problems. The Air Force may even try to keep the bidders from modifying their bid proposals; more likely they'll try to minimize the modification allowed to just the parts of the offerers' bids responsive to the changed draft RFP.

 

If this happens, we'll know for sure by the time the Air Force issues what is called a draft amendment to its request for proposals (RFP). It's likely in Northrop-EADS' best interest to go along with this narrow scope approach if it happens. But Northrop-EADS doesn't want to be seen as too cozy with the Air Force either.

 

My belief is that Boeing will want to roll the competition back as much as possible. Now they have a better idea of what Northrop-EADS has offered and what the Air Force wants and they want to win. So that means they will probably want to significantly alter their bid -- maybe even what plane they want to offer. There's no guarantee Boeing will stick with the 767 platform -- they could go with a 777 or 747 even.

 

Narrow or wide--those are the Air Force's options. The Air Force wants these planes sooner not later, so rolling the competition back to an earlier stage means a longer process. But if it chooses the narrow road of modifications to the RFP, then it risks further protests, a prolonged fight with Congress or who knows -- all of those unknowns can delay the program as well. (by Nick Schwellenbach, POGO) (ends)

 

 

How Big Is Boeing's Big Win? (excerpt)

(Source: Business Week; published June 19, 2008)

 

Behind the scenes on Capitol Hill, there's talk of a brokered deal that would split the contract—an idea first raised in 2007 by Northrop and the Air Force but rejected by Boeing. A day before the ruling, Boeing Vice-President Mark McGraw, who heads the tanker program, told Business Week that if a deal were offered, "we'd certainly be in listening mode." Now? McGraw won't say.

 

For years, ongoing turbulence over the tankers has thwarted Air Force attempts to replace its aging fleet. Alaskan Ted Stevens, the top Republican on a U.S. Senate defense appropriations subcommittee, is quietly pushing to divvy up production between Boeing and Northrop to get the deal moving.

 

The Air Force, too, could decide that compromise is the fastest way out of the current mess, rather than letting the fight drag on. That could also ease political controversy over the deal, which has become a flashpoint in the coming election. Critics of the Northrop-EADS bid dispute the companies' claim that their deal would sustain more U.S. jobs.

 

A cut of the current deal would help Boeing stabilize its slipping military business; moreover, other nations probably won't buy Boeing tankers if the U.S. doesn't. And for EADS, half a deal would give it a U.S. foothold—better, perhaps, than continued skirmishing amid uncertainty. Would Northrop now be willing to split the difference? If so, it's keeping mum.

 

All three companies say they'll study the ruling before deciding on their next steps. (end of excerpt)

 

(EDITOR’S NOTE: To avoid losing all in-flight refueling capabilities in the event one aircraft type is grounded, the US Air Force intended to ultimately buy two distinct tanker aircraft. In this respect, splitting the buy now, rather than later, makes sense.) (ends)

 

 

What’s Next On The Tanker?

(Source: Leeham Companies, LLC blog; posted June 19, 2008)

 

We’ve been asked by media across the country, What’s next for the tanker competition?

 

We stated our position long ago: if Boeing lost the protest, it should accept the GAO decision. On the other hand, if the Air Force lost, then the service and Northrop should accept it.

 

This means the deal, in our view, should be rebid as recommended by the GAO.

 

As for what should happen, we’ve been clear about that for a long time: double the production and appropriation and split the order between Boeing and Northrop. Then everyone can get on with their lives and be put out of collective misery over this interminable saga.

 

Details beginning to emerge in tanker ruling

 

All those interested in the GAO tanker decision are waiting for the 69-page decision to be sanitized of proprietary information, but one detail about life cycle cost emerged, according to this Bloomberg report: that Boeing wound up with a $91.8m life cycle advantage after the Air Force corrected a math error. This math error was one of seven “significant” errors identified by the GAO in its three page press release in recommending a recompete.

 

To put this in perspective, this is a difference of $2.3 million per year over the projected 40 year life cycle, out of a $35 billion program. This is a rounding error, and not one we’d call particularly significant. It’s also a far cry from the hyperbolic, hand-wringing $40 billion promoted by Boeing.

 

We hope the 69-page decision is a bit more definitive and substantive than this.

From Defense Aerospace

 

Decision (edited excerpt)

(US Government Accountability Office; issued June 25, 2008)

 

The Boeing Company protested the award of a contract to Northrop Grumman Systems Corporation under request for proposals (RFP) No. FA8625-07-R-6470, issued by the Department of the Air Force, for aerial refueling tankers. Boeing challenges the Air Force’s technical and cost evaluations, conduct of discussions, and source selection decision.

 

We find that the agency’s selection of Northrop Grumman’s proposal as reflecting the best value to the government was undermined by a number of prejudicial errors that call into question the Air Force’s decision that Northrop Grumman’s proposal was technically acceptable and its judgment concerning the comparative technical advantages accorded Northrop Grumman’s proposal.

 

In addition, we find a number of errors in the agency’s cost evaluation that result in Boeing displacing Northrop Grumman as the offeror with the lowest evaluated most probable life cycle costs to the government.

 

Although we sustain Boeing’s protest on grounds related to these errors, we also deny many of Boeing’s challenges to the award.

 

Conclusion And Recommendation

 

This decision should not be read to reflect a view as to the merits of the firms’ respective aircraft. Judgments about which offeror will most successfully meet governmental needs are largely reserved for the procuring agencies, subject only to such statutory and regulatory requirements as full and open competition and fairness to potential offerors.

 

Here, we find a number of errors in the Air Force’s conduct of this procurement, including the failure to evaluate proposals in accordance with the RFP criteria and requirements and to conduct discussions in a fair and equal manner.

 

But for these errors, we believe that Boeing would have had a substantial chance of being selected for award(Emphasis added—Ed.).

 

Accordingly, we sustain Boeing’s protest of the Air Force’s award of a contract to Northrop Grumman for the aerial refueling tankers.

 

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, consistent with this decision.

 

If the Air Force believes that the RFP, as reasonably interpreted, does not adequately state its needs, the agency should amend the solicitation prior to conducting further discussions with the offerors.

 

If Boeing’s proposal is selected for award, the Air Force should terminate the contract awarded to Northrop Grumman.

 

We also recommend that Boeing be reimbursed the reasonable costs of filing and pursuing the protest, including reasonable attorneys’ fees. Boeing should submit its claim for costs, detailing and certifying the time expended and costs incurred, with the contracting agency within 60 days after receipt of this decision. (end of excerpt)

 

Click here for the full redacted version of the GAO’s decision (67 pages in PDF format)

 

 

Government Cites Litany of Errors in Tanker Award (edited excerpt)

(Source: Washington Post; published June 26, 2008)

 

The Air Force bungled its biggest procurement deal to spend $40 billion to buy new aerial refueling tankers to replace its aging fleet, federal investigators declared last week. But what wasn't publicly known until yesterday was just how badly they did so.

 

In a 67-page review, the Government Accountability Office sharply criticized the Air Force for a litany of contracting transgressions, including everything from failing to follow its own evaluation criteria to miscalculating the maintenance costs, size and amount of fuel a plane could carry and holding unfair discussions with one of the bidders.

 

…/…

 

When they announced the winner, Air Force officials said repeatedly that they'd run an "incredibly open and transparent" process that would withstand any legal challenges.

 

But the GAO report made public yesterday differed about as sharply as could be imagined.

 

It found that the Air Force's selection process was so misguided that it was "undermined by a number of prejudicial errors that call into question the Air Force's decision."

 

Along the way, the Air Force seemed to guide Northrop through some pitfalls. In one instance, the Air Force first told Boeing that it had satisfied one set of objectives, but later, after discussions had been closed, decided that it had not. But the Air Force told Northrop about objectives it had not met, allowing that company to change its proposal and meet the requirements.

 

"It is a fundamental precept of negotiated procurements that discussions, when conducted, must be meaningful, equitable, and not misleading," the GAO said in its assessment. The GAO said the Air Force "treated the firms unequally" in holding discussions with one but not the other. (end of excerpt)

 

 

Boeing Statement on Government Accountability Office Tanker Protest Report

(Source: Boeing Co.; issued June 25, 2008)

 

ST. LOUIS --- Boeing today responded to the public release of the full redacted Government Accountability Office (GAO) report sustaining the company's protest of the U.S. Air Force's award of a $35 billion contract to Northrop Grumman/EADS to supply the service with its next-generation aerial refueling aircraft.

 

Boeing released the following statement on the 67-page report from Mark McGraw, vice president, Tanker Programs:

 

"Our initial review of the full redacted GAO sustainment further validates Boeing's decision to protest this contract award. It is clear the award was the result of a flawed process. It also confirms the strength of our KC-767 offering to the Air Force, as the GAO reports that Boeing had a 'substantial chance of being selected for award' were it not for the numerous process flaws." (ends)

 

 

Northrop Grumman Stands Ready to Support Air Force Tanker Decision

(Source: Northrop Grumman; issued June 25, 2008)

 

WASHINGTON --- Northrop Grumman Corporation said, today, that it continues to support the United States Air Force and looks forward to its next steps regarding the direction of the KC-45 tanker program. This follows today's public release of the full Government Accountability Office (GAO) analysis of the original tanker contract award to Northrop Grumman.

 

"The document makes clear that the GAO's issues with the contract do not reflect on the tankers' capabilities. In fact, in several areas key to the selection decision the GAO found no basis to object to the Air Force evaluation," said Paul Meyer, Northrop Grumman vice president of Air Mobility Systems and KC-45 program manager. "We look forward to a prompt assessment from the Air Force concerning what happens next."

 

On Feb. 29, the Air Force selected Northrop Grumman to provide the next generation of aerial refueling tanker, the KC-45. The Air Force has an urgent need to replace its aging tanker fleet.

 

"The KC-45 is needed now, and Northrop Grumman is ready now to provide it," said Meyer. "Should the Air Force choose to proceed with our existing contract, we are ready to get to work. Northrop Grumman offered the superior tanker and nothing in the GAO analysis contradicts this essential truth.

 

"Northrop Grumman remains the only company in this competition that has built, tested and flown its plane. In addition, our refueling boom has just completed its 100th flight test. At this point, our competitor has offered only a paper plane," Meyer said. "For our men and women in uniform, the most important thing is to field the new tanker as soon as possible. Only Northrop Grumman is ready to do that."

 

The KC-45 Tanker aircraft will be assembled in Mobile, Ala. - establishing Mobile as the new cornerstone of the Southern Aerospace Corridor. The program will employ 48,000 American workers at 230 U.S. companies in 49 states; and will be built by a world-class industrial team led by Northrop Grumman, and includes EADS North America, General Electric Aviation and Sargent Fletcher.

 

Northrop Grumman Corporation is a global defense and technology company whose 120,000 employees provide innovative systems, products and solutions in information and services, electronics, aerospace and shipbuilding to government and commercial customers worldwide.