UPDATE 3-Northrop won't rule out boycott of tanker rematch
* Pentagon says any boycott hard to imagine
* Northrop may take legal action over pricing info
* Says Pentagon proposing a "cost shootout" (Adds Pentagon dismisses possible boycott)
By Jim Wolf
WASHINGTON, Oct 28 (Reuters) - Northrop Grumman Corp (NOC.N) left open the possibility it might boycott the Pentagon's multibillion-dollar aerial tanker recompetition, faulting draft bidding rules and expanding a complaint that rival Boeing Co (BA.N) had been given an unfair edge.
Northrop, which is partnered with Europe's EADS (EAD.PA), said Wednesday the proposed rules set up a counterproductive "cost shootout" with Boeing that would spur a "race to the bottom" and reduce the capabilities of the refueling tankers.
The Pentagon's draft request for proposal, released Sept. 25, would eliminate a more capable aircraft even if it cost just 1.1 percent more because of a Pentagon proposal to weigh all 373 threshold bidding requirements equally, Mitch Waldman, a Northrop vice president, told a briefing.
"Compared to the last competition, we may be on a path where the taxpayer may pay more for less capability," he said.
Asked whether Northrop might decline to compete in the absence of significant changes to the rematch, Waldman said: "We really need to see what the final request for proposals looks like before we make that determination."
The Northrop-EADS team won a potential $35 billion contract in February 2008 to supply the U.S. Air Force an initial 179 tankers, which are used to refuel planes in flight. The Pentagon scrubbed the deal after federal auditors upheld a Boeing protest that the Air Force had failed to follow its own scoring rules.
The current contest, the first phase of a fleet renewal worth more than $100 billion over coming decades, is the Pentagon's third try in eight years to replace its KC-135 tankers, which average more than 50 years old.
Geoff Morrell, the Pentagon press secretary, dismissed any possible boycott.
"I find that extraordinarily hard to believe. This is an extremely lucrative contract and I don't think we have any doubt that there will be a healthy competition to win it," he told reporters at the Pentagon.
Based on complaints from both sides, he added that, "we may have found the sweet spot" for structuring a contest that will be fair and impartial.
Northrop, pressing its complaint about pricing information given to Boeing after the last round, said the U.S. government's disclosure of its bid was "not in accordance" with U.S. regulations, contrary to government claims.
The government gave Boeing Northrop's actual bid prices for four development aircraft, 64 production units and 179 planes, not just the "overall evaluated cost or price," Randy Belote, a Northrop spokesman, told reporters.
Asked what Northrop might do about this, Belote said options under review included pressing for Boeing's tanker pricing data under the Freedom of Information Act, although he said it is exempt under that, and unspecified "legal action."
Northrop's preference, he said, was to work with the government to "try to resolve this issue as quickly as possible."
Boeing has declined a Pentagon request to release its own pricing data from the last competition, the Pentagon's general counsel, Jeh Johnson, told Northrop in a letter dated Sept. 23 and obtained by Reuters.
A Defense Department spokeswoman, Cheryl Irwin, said the Pentagon was very "cognizant of the criticisms made" and was taking "very strong steps to try and correct those criticisms."
Boeing took a shot at the Northrop-EADS team for going public with its concerns about the proposed bidding rules.
"While our opponent and their supporters have begun attacking the U.S. Air Force and its KC-X Tanker draft Request for Proposal, Boeing has chosen to work within the process and continue asking questions," said Bill Barksdale, a Boeing spokesman.
Boeing Chief Executive James McNerney last week took aim at the Air Force for exempting a trade dispute between Brussels and Washington over alleged aircraft subsidies, a factor he said could harm Boeing's chances in the tanker bidding. (Reporting by Jim Wolf; Editing by Tim Dobbyn, Gary Hill)
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