Pentagon Reopens Bidding on Tanker Contract

By John J. Kruzel
American Forces Press Service

July 9, 2008 - The Defense Department has reopened the bidding process for a multibillion-dollar midair refueling tanker contract, Defense Secretary Robert M. Gates said today. The announcement comes after the Government Accountability Office last month found improper practices related to the $35 billion contract awarded in February to the Northrop-Grumman/EADS/Airbus consortium, which prompted a protest from rival bidder Boeing Company.

"Industry, Congress and the American people all must have confidence in the integrity of this acquisition process," Gates said at a Pentagon news conference. "I believe the revised process will result in the best tanker for the Air Force at the best price for the American taxpayer."

Replacing the Air Force as the "source selection authority" is John J. Young Jr., undersecretary of defense for acquisition, technology and logistics. He is tasked with appointing an advisory committee to oversee the selection of a bidder to supply the modified commercial aircraft fleet that will phase out the current KC-135 tankers, which are 47 years old, on average.

The Defense Department has ordered Northrop-Grumman to stop work on its contract, and a modified request for proposal could be issued as early as this month. The tanker request will remain in "open competition" until a new contract is awarded, which Gates said he expects will happen before year's end.

"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," the secretary said, referring to the tanker contract as one of the department's most "time-critical."

The Boeing protest filed early this year alleged more than 100 violations of proper contracting practices, eight of which were sustained by the Government Accountability Office, the investigative arm of Congress.

After reviewing the GAO's decision, Michael B. Donley, acting secretary of the Air Force, said he concluded that the Air Force's acquisition system is not "fatally flawed."

"However, the GAO did sustain the protest in eight areas, and this has been sufficient to cast doubt on the Air Force's management of the overall process," he said.

While re-bidding the contract will add months to the process, Donley said, it offers "the most direct route to complete the competition, achieve a final decision and field the tanker that represent the best value for the warfighter and the taxpayer."

Donley, who joined Gates at today's briefing, became the Air Force's acting secretary last month following a shakeup at the top levels of the service branch. The 67-page GAO report that cited "significant errors" in Air Force recruiting practices became public nine days into his tenure.

Donley's predecessor, Michael W. Wynne, and Air Force Chief of Staff Gen. T. Michael Moseley resigned in the wake of a report detailing the accidental shipment of four non-nuclear missile trigger components rather than the intended helicopter batteries to Taiwan in August 2006. The erroneous delivery came on the heels of another Air Force incident in which a B-52 bomber flew across the United States carrying six armed nuclear cruise missiles.

"The Air Force needs to rapidly apply the lessons learned from this experience and move forward," Donley said of the tanker contract, pressing the need to rebuild confidence in the Defense Department acquisition process. "Other Air Force acquisition decisions are on the horizon.

"GAO's conclusions show that even in a large, complex procurement with considerable staff resources and oversight, work accomplished by our contracting personnel, our warfighters and our engineers is not always adequately prepared to withstand the detailed audits and the legal challenges that we can now expect," he said.

Asked how the Defense Department will mitigate the chance of a future protest, Gates said the department will carry out the new process with transparency, open communication, clear expectations and fairness.

"My hope would be that when we reach the end of this process we will have a solution, will be able to reward a contract and get moving with the contract," he said.

Young, who will head up the source selection committee, entertained the possibility that new proposals from industry bidders could come with a smaller price tag than their original offers.

"We'll see what the industry teams propose," he told reporters here. "I think that would probably be the only silver lining in this, is the possibility that both teams decide to sharpen their pencils and offer the taxpayer and the warfighter an even better deal."