Pentagon Yanks Tanker Contract From EADS

The Pentagon will ask EADS, along with US partner Northrop Grumman and rival Boeing, to submit revised proposals following a finding by the GAO, a congressional investigative agency, that the Air Force's decision in favor of EADS was flawed, US Defense Secretary Robert Gates said Wednesday, July 9.

"I've concluded that the contract cannot be awarded at present because of significant issues pointed out by the Government Accountability Office," Gates said.

A new winner for the $35 billion (22 billion-euro) contract to build 179 KC-X aerial refuellers will be awarded through an expedited process to be completed by December, in what will be a limited competition to address the GAO concerns.

"It is important to remember that this decision does not represent a return to the first step of a process that has already gone on far too long," Gates said, adding that the need to replace the Air Force's ageing fleet of tankers was "time critical."

Critical errors opens door to new bids

In a report issued June 18, the GAO upheld Boeing's formal protest that the Air Force made critical errors in awarding the contract and urged the Pentagon to reopen the competition.

John Young, undersecretary of defense for acquisition, said that the Pentagon will ask the defense firms to submit new proposals by the end of the summer.

The GAO ruled that the Air Force overlooked key aspects of the Boeing proposal that could have tilted the contract in the US-based aerospace giant's direction, and failed to inform Boeing of the Air Force's interest in a larger aircraft before choosing the Northrop- EADS bid in March.

While the GAO decision was not binding, a failure by the Pentagon to embrace the decision could have brought congressional scrutiny from lawmakers who control the defense budget.

Boeing welcomed the decision by the Pentagon to strip Northrop and EADS of the contract while saying the criteria for re-awarding the contract should not be altered.

"We welcome the decision by Defense Secretary Robert Gates not to proceed with the contract award to Northrop Grumman/EADS and to reopen the KC-X tanker competition," Boeing said in a statement.

EADS sure of second chance

Northrop and EADS remained confident they will still win the contract and praised Gates for finding a quick solution to the dispute.

"The United States Air Force has already picked the best tanker, and we are confident that it will do so again," Northrop spokesman Randy Belote said.

Northrop and EADS have not decided whether to alter their original proposal but would "wait and see" whether the Pentagon changes the criteria, he said.

The contract was the first of three that could reach a combined value of $100 billion over 30 years. Dozens of members of Congress criticized the Air Force for shipping defense jobs abroad at a time when the US economy is struggling.

Northrop Grumman and EADS had said that they would build a plant in the US state of Alabama to assemble the aircraft from parts manufactured in Europe.

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

Congress upset over foreign contract

EADS (the European Aeronautic Defence and Space Company), the parent company of Boeing rival Airbus, is partly owned by European governments.

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

The Air Force sparked outrage within Congress when it handed the contract to Northrop and EADS. Lawmakers complained that government contracts should not be filled abroad at a of growing US unemployment.