Boeing scores victory in contract duel with EADS (2nd Roundup)

By Mike McCarthy Jun 18, 2008, 23:21 GMT

Washington - The US Air Force made mistakes in evaluating a Boeing proposal and unfairly awarded the contract for the next generation of aerial refuellers to Northrop Grumman and EADS, a US congressional agency said Wednesday.

The Government Accountability Office's decision was a major victory for Boeing in its dispute with the Air Force and rivals Northrop and its European partner EADS over the 35-billion-dollar contract to build the KC-X.

In upholding Boeing's formal challenge to the deal, the GAO said the Air Force should hold a new competition for the contract to build the 179 tankers. The contract was the first of three that when combined could reach a value of 100 billion dollars over 30 years.

'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, a GAO counsel for procurement law.

While GAO's rulings are not binding, the finding could embolden protests from congressional lawmakers who argued the Pentagon should not have awarded such a vital contract to a European firm amid economic woes in the United States.

Congress could cut off funding for the programme if the Air Force does not comply with GAO's recommendations. GAO said the Air Force overlooked key aspects of the Boeing proposal that could have tilted the contract in the aerospace giant's direction.

The auditors found Boeing offered to meet more non-mandatory requirements than Northrop and that the Boeing version could have come at a cheaper price over the life cycle of the programme.

GAO also found that the Air Force misled Boeing by saying it was satisfied with a key objective, then later changed that assessment without informing Boeing. The Air Force said it will review the decision and will move quickly to resolve the dispute.

'The Air Force will do everything we can to rapidly move forward so America receives this urgently needed capability,' said Sue C Payton, an Air Force assistant secretary. 'The Air Force will select the best value tanker for our nations defense, while being good stewards of the taxpayer dollar.'

The Air Force awarded the contract to Northrop and EADS in February, sparking outrage in Congress but celebrations in Europe, where most of the aircraft's components would be built before being assembled in the United States. The European Aeronautic Defence and Space Company is the parent firm of Boeing archrival Airbus.

Boeing complained that the Air Force chose the EADS version based on an Airbus 330 after being told that its 767 met the Air Force requirement. Boeing said it could have proposed its 777 instead had it been adequately told of the Air Force's needs. Boeing welcomed Wednesday's decision.

'We appreciate the professionalism and diligence the GAO showed in its review of the KC-X acquisition process,' Boeing vice president for tanker programmes, Mark McGraw, said. 'We look forward to working with the Air Force on next steps in this critical procurement for our warfighters.'

Northrop spokesman Randy Belote said that despite the GAO report, his company was offering the best deal for the Air Force.

'We continue to believe that Northrop Grumman offered the most modern and capable tanker for our men and women in uniform,' Belote said.

Reached by Deutsche Presse-Agentur dpa in Paris, EADS chief executive Louis Gallois said: 'Despite our disappointment we must conclude that the (GAO) announcement was an evaluation of the selection process and not the value of our offer.'

EADS planned to build production plants in the United States for the aircraft, including in Mobile, Alabama. House Representative Jo Bonner, whose district includes the Gulf of Mexico port city, said he was disappointed by the GAO decision.

'I am obviously deeply disappointed ­ and surprised ­ that the GAO sustained Boeing's protest of the Air Force's decision to select Northrop Grumman/EADS to build its new tanker,' he said.

'I dont believe this ruling signals the end of Alabama's hopes for building tankers for the Air Force. It does mean, however, that we have more work to do,' he added.