When Northrop Grumman pulled out of the $40 billion competition to build aerial refueling tankers for the Air Force, leaving Boeing as the likely winner, some analysts questioned whether White House acquisition reform efforts are pushing contractors too hard.
Loren Thompson, a defense industry expert at the Lexington Institute, told the Washington Post “it shows how acquisition reform can backfire. If you push a contractor too far, they don’t have any incentive to bid because they don’t expect to make any money. The lesson is, if you push contractors too far, they’ll lose interest.”
Some questioned whether the award was steered away from Northrop Grumman because of its partnership with Airbus, a subsidiary of Paris-based European Aeronautic Defense & Aerospace (EADS). The EU’s Trade Commissioner Karel De Gucht said “It is highly regrettable that a major potential supplier would feel unable to bid for a contract of this type. Open procurement markets guarantee better competition and better value for money for the taxpayer.” An EU press release said, “The European Commission would be extremely concerned if it were to emerge that the terms of tender were such as to inhibit open competition for the contract.”
The contract was awarded to Northrop Grumman in 2008, but Boeing successfully protested the award, after which, the Air Force released new criteria for the tanker. Last December, Northrop Grumman/EADS expressed serious concerns to the Pentagon and the Air Force that the criteria for the project were slanted in favor of the Boeing design. Last year, Northrop Grumman also expressed concern over detailed pricing data provided to Boeing.
Paul K. Meyer, Northrop Grumman VP and general manager of its Advanced Technology and Programs Division, released this statement last September, “Northrop Grumman continues to be greatly concerned that its pricing information from the previous tanker competition was provided by the Government to its competitor, Boeing. Access to comparable pricing information from Boeing has thus far been denied by the Pentagon. With predominant emphasis placed on price in this tanker re-competition and Northrop Grumman again proposing its KC-45 refueling tanker, such competitive pricing information takes on even greater importance. It is fundamentally unfair, and distorts any new competition, to provide such critical information to only one of the bidders. The company will continue to work with its customer to fully resolve this issue.”
Senator Richard Shelby of Alabama, where the Northrop Grumman/Airbus team would have built the tankers, told the Washington Post that the “so-called competition” was “structured to produce the best outcome for Boeing.”
Whether or not the competition was unfair, these allegations have serious implications for the White House’s efforts to reform the defense procurement process.