Boeing mulling protest in tanker contest

Business Materials 22 August 2008 05:34 (UTC +04:00)

Unless the Pentagon reverses course and changes its new draft guidelines for a $35 billion competition for refueling aircraft, Boeing Co may well file a protest against terms it considers unfair. ( Reuters )

"The final decision to lodge a protest rests with Boeing's chairman, but the dominant view in the company is that they must protest because the revised solicitation is unfair and they can't win on these terms," said defense analyst Loren Thompson of the Virginia-based Lexington Institute.

Several other sources who are closely watching the process agreed, noting that Boeing had already invested too much time and money in the competition to overlook what it considers an unreasonable deadline to prepare a new bid based on a tanker larger than the 767 aircraft they proposed initially.

But Thompson said there was also a faction within Boeing that favored withdrawing from the competition completely.

Boeing spokesman Dan Beck said the company was still evaluating its options. "We have not made any decisions but all options are certainly on the table," Beck said.

Northrop Grumman and its European subcontractor EADS beat out Boeing to win the lucrative contract in February, but the Pentagon relaunched the competition after the Government Accountability Office found significant errors in the selection process and upheld a Boeing protest.

At issue is a change in the wording of the Pentagon's new draft request for proposals, which now says bidders will get credit for delivering more fuel than required.

The final request is now expected next week, featuring an aggressive schedule aimed at selecting a winner by the end of the year and putting an emphasis on fuel offload.

Boeing supporters say the new wording favors Northrop's larger tanker based on the Airbus A330, and the current timetable is too brief for Boeing to prepare a bid based on a bigger aircraft.

Northrop says it was clear all along that the government wanted the most capability it could get at the best price.

Mandating a tight schedule would make the competition look "fixed," which could prove embarrassing to Pentagon leaders after a string of other procurement problems, said George Behan, a spokesman for Rep. Norm Dicks, a Democrat from Washington state.

Pentagon leaders insist they have only clarified their intent, not changed the requirements for the tanker, and that means the companies should be able to respond quickly.

Northrop and EADS are ready to respond and have urged a quick resolution of the issues.

If Boeing protests, the Pentagon could still require the companies to submit bids according to the prescribed schedule to keep the competition running, said one source familiar with the protest process.

Pentagon officials have already agreed to give Boeing and Northrop 60 days - two weeks longer than initially planned - to submit new bids after they receive a final request for proposals next week.

But even the additional time would not give Boeing enough time to prepare a bid based on the larger 777 airliner or the 767-400 version of the 767, analysts and sources said.

Other major defense procurements generally unfold over a year or longer, giving companies more time to develop their bids, but the Pentagon says it has not changed the guidelines substantially and so companies should be ready to submit bids.

Northrop spokesman Randy Belote said Boeing appeared to be asking for more time to respond to this new request for proposals than the 60-day response time in the original competition: "The fact is that this process has been going on for more than 2,500 days. How much time does Boeing need?"

Boeing backers are also concerned that recent remarks by top Pentagon officials indicate that the purchase price could take on far greater importance in this competition, and move away from the concept of a "best value" competition.

The Pentagon had hoped to issue the final request for proposals over the past few days, but Boeing requested another meeting with acquisition officials to discuss the draft, and chief Pentagon arms buyer John Young is out of town this week.

Boeing is leaning toward an early protest for several reasons, including a growing feeling that government officials are not taking company concerns seriously, Thompson said.

Some company officials had already wanted to protest early on in the original competition, after some terms were changed to keep Northrop in the running.

Thompson said the situation was reminiscent of another big US Air Force procurement that had to be redone - the $15 billion combat search and rescue helicopter (CSAR) contest initially won by Boeing and its twin-rotor Chinook helicopter.

The Air Force tried to execute a "quick fix" after the GAO upheld a protest filed by losing bidders Lockheed Martin Corp and a unit of United Technologies Corp, but they protested again and won again. Ultimately, the Air Force agreed to redo the competition, resulting in a two-year delay.

"If there's one lesson to be learned from CSAR is that you can't do a quick fix to a flawed process without encouraging another protest," Thompson said.