Pentagon To Oversee Disputed Contract

Boeing Co. and Northrop Grumman Corp. will submit new offers for a disputed $35 billion Air Force tanker contract, and the Pentagon will pick a winner by the end of the year.

Defense Secretary Robert Gates said Wednesday that his office - not the Air Force - will oversee the competition between Boeing and the team of Northrop and Airbus parent European Aeronautic Defence and Space Co.

The plan, which hands control to Pentagon acquisition chief John Young and sets up a dedicated source-selection committee, is the latest illustration of senior Defense Department civilians lack of confidence in the Air Force's ability to manage the contract.

"I think it's better," said Rep. Norm Dicks, D-Wash. "No one has any faith in the Air Force."

The Government Accountability Office last month detailed "significant errors" the Air Force made in the original award to the Northrop team. The GAO said Chicago-based Boeing, which protested the deal, might have won the contract had the service not made mistakes in evaluating the bids.

The Pentagon now will conduct a limited rebid that looks only at eight issues where government auditors found problems in the initial process, Gates said.

Sen. Richard Shelby, a Republican from Alabama, where the Northrop Grumman team would assemble its plane, called it "the best of all options" that would address the "minor procedural flaws" the GAO cited.

During a Pentagon press conference, Young said the government will not award deals to both companies, a compromise some have suggested, because it would result in higher costs, as well as complex logistics, training and operations.

Lawmakers from Washington state and Kansas, where Boeing employs thousands of workers, have put considerable pressure on the Air Force to reopen the bidding process and cancel the contract with the Northrop team.

"The GAO report made it impossible for Secretary Gates to make any other decision," said Sen. Maria Cantwell, D-Wash. "The American people and the American warfighter cannot afford the same Defense procurement team to make the same mistakes."

The deal has emerged as the latest black eye for the service, which is trying to rebuild a tattered reputation after a procurement scandal in 2003 sent a top Air Force acquisition official to prison for conflict of interest and led to the collapse of an earlier tanker contract with Boeing. More recently, the service's two top officials were ousted last month over mistaken nuclear shipments.

The Air Force in February selected the Northrop team to replace 179 Eisenhower-era aerial refueling planes. Boeing filed its protest in March.

In a letter to lawmakers, Gates admitted there were "deficiencies in the process" of awarding the contract, but called some of the criticism of the department's handling of it "inaccurate and misleading."

Gates said he still had confidence in the Air Force's acquisition team, and that the new plan "does not represent the first step in the process."

Acting Air Force Secretary Michael Donley called the Pentagon action an "appropriate and necessary step."

The deal - one of the largest in Pentagon history - is the first of three contracts worth up to $100 billion to replace nearly 600 refueling tankers over the next 30 years.

Shares of Boeing added 68 cents to $66.60 in afternoon trading, while Los Angeles-based Northrop Grumman fell 20 cents to $65.97.