New Tanker Contest Off To A Rocky Start

(MoneyWatch)  The third attempt to procure a new aerial tanker for the U.S. Air Force began on Friday and is already off to a rocky beginning. The Air Force released the draft Request for Proposal (RFP) on Friday the 25th after briefing Congress and the press on Thursday. It is expected that the same two companies, Boeing and Northrop Grumman with EADS, will bid this time around as the last time.

There are three issues percolating about the upcoming contest that are adding complexity and politics to the contest. Some of these are related to fallout from the last attempt at awarding the Northrop/EADS team the contract last year. This was overturned on protest by Boeing.

Northrop is now saying that as part of the protest resolution Boeing was provided Northrop cost information and is demanding the same about Boeing from the Government. This is necessary to balance out the competition because if Boeing has insight into Northrop and EADS costs it will help them skew their proposal to make it more competitive. By getting the same information about Boeing's plans it will even out the proposals. The Government denies providing pertinent or current information and believes it should not have any affect on the new RFP.

Another issue is that the World Trade Organization (WTO) recently ruled that the start up aid received by EADS from European countries were illegal subsidies. This would give EADS an unfair price advantage. A counter claim is under consideration by the WTO that Boeing's military and space contracts offer them the same advantage.

Finally there are some in Congress who are still pushing the idea of giving both companies a contract. This would allow a more rapid replacement of the near sixty year old KC-135 tankers currently being used. The idea has been opposed by the Air Force and Defense Department as operating two different aircraft is more expensive as it requires two complete logistic and training tails. In this case the savings in procurement money would be offset by the much higher operations and support costs.

The first two issues are more serious as they could be used to support a protest no matter who wins an award. Northrop may claim that the cost data provided earlier helped Boeing while Boeing might use the WTO ruling to argue the price offered by its competitor was artificially lowered. A protest will only further delay the production and fielding of the new aircraft and is the last thing the Air Force wants. They are hoping that structuring the contract as a "best value" with three hundred mandatory factors. This way the case for whom they chose will be clear and hard to argue.

As this is the largest contract for the company's civil aircraft in the near term it will be a hard fought battle. Ultimately almost five hundred of the aircraft will be built and be worth tens of billions of dollars to the contractor producing them. The support contracts over the next fifty years will only increase the possible revenue. This will not be an easy win for either company.