UPDATE 1-US Air Force must redo Afghan plane contest soon
* Afghan air force needs planes for close air support
* General vows "hell to pay" if not innocent mistake
* Investigation under way
WASHINGTON, Feb 29 (Reuters) - U.S. Air Force officials must quickly redo a competition for 20 airplanes for the Afghan air force after substandard documentation forced the service to scrap a $355 million contract award, the top Air Force general said on Wednesday.
Air Force Chief of Staff General Norton Schwartz acknowledged the issue was an embarrassment for the Air Force, which struggled with acquisition problems over the last decade, and said "there would be hell to pay" if the documentation problem was not an innocent mistake.
The Air Force on Tuesday abruptly canceled a contract awarded to Sierra Nevada Corp and Brazil's Embraer in December for 20 light-support aircraft to be used for training the Afghan air force, and said it was investigating problems with documents used to make the decision.
"If in fact this was a failed source selection, it is a profound disappointment," Schwartz told a defense reporters breakfast. "Not only because our institutional reputation is at stake, let's face it, but also because our Afghan partners need this capability."
Schwartz said there were also budget pressures to quickly redo the competition, since funds for the program expire at the end of fiscal year 2013.
Asked if the program could be completely eliminated given mounting budget pressures, Schwartz said the planes were still essential to giving the Afghan air force the ability to provide close air support for ground troops.
He said the U.S. Air Force decided to cancel a contract award after discovering substandard documentation for the decision while preparing for a lawsuit filed by competitor Hawker Beechcraft Inc.
The Air Force has told the companies it is still deciding whether to restart the contract award process with new rules or to retain the previous rules, but Hawker would be allowed to participate after being knocked out of the competition last year. It will also seek to have Hawker's lawsuit dismissed.
The Air Force's acquisition team has struggled to rebuild its reputation after a series of embarrassing reversals during a decade-long battle between Boeing Co and Europe's EADS to build 179 refueling aircraft for the U.S. military.
Schwartz said he believed that systemic issues that emerged from the tanker scandal had been resolved, but the Air Force clearly still had work to do on its acquisition system.
"We obviously haven't arrived at the point where we are consistently providing the level of acquisition excellence that's expected," he said. "There's no way to put a happy face on this."
The Air Force in December awarded privately held Sierra Nevada and Brazilian planemaker Embraer an order for 20 A-29 Super Tucano aircraft, as well as ground training devices and support, to be used to train the Afghan air force, and give them the planes needed for close air support.
The deal was potentially worth up to $1 billion, depending on future orders.
The service issued a stop-work order in January after Hawker Beechcraft filed a lawsuit challenging the decision, but said at the time it believed the competition and source selection evaluation had been fair, open and transparent.
Sierra Nevada, prime contractor on the bid with Embraer, and Hawker Beechcraft both said they hoped to compete for the work in a follow-on competition.