* Pentagon to review latest procurement problem
* Top general says embarrassed, looking for cause of issue
* Air Force purchase chief sees no lowering of requirements
By Andrea Shalal-Esa
WASHINGTON, March 8 (Reuters) - The Pentagon could assume control of major Air Force acquisition decisions after paperwork problems prompted the service to abruptly cancel a $355 million contract for 20 planes to be sold to Afghanistan, the top Air Force officer said on Thursday.
"It's possible," Air Force Chief of Staff Gen. Norton Schwartz said when asked if Pentagon acquisition officials could take control of Air Force acquisitions again, as they did after a major procurement scandal in the mid-2000s.
Schwartz told a defense conference hosted by Credit Suisse and defense consultant Jim McAleese that he was embarrassed that the Air Force had found "inadequate" documentation for the contract award to privately held Sierra Nevada and partner Embraer.
Last week he told reporters there would be "hell to pay" if the issue turned out not to be an innocent mistake.
The canceled contract was to fund 20 light attack planes to be produced for Afghanistan as part of a foreign military sale. It was worth up to $1 billion, if all options were exercised.
He said acting Pentagon acquisition chief Frank Kendall would make a recommendation on the oversight issue after reviewing the facts of the Sierra Nevada case, and whether it involved systemic issues or individual error.
The Air Force discovered the paperwork issue while preparing for a lawsuit filed by Sierra Nevada's competitor, Hawker Beechcraft, whose AT-6 plane the Air Force had previously declared "technically insufficient."
Schwartz declined to give further details on an investigation into the matter, citing the ongoing litigation. "We'll certainly identify the root causes of that failure to perform," he said, adding that it would be wrong to "cast dispersion" on the entire Air Force acquisition workforce.
Schwartz said the whole issue was disappointing since the Air Force had spent years trying to improve its acquisition process after a spate of problems in the last decade, including its first attempt to replace its aging KC-135 refueling planes.
The proposed lease deal with Boeing Co was canceled by Congress in 2004 after the former No. 2 Air Force acquisition official, Darleen Druyun, was sentenced to nine months in prison for violating conflict of interest laws.
In that case, Druyun admitted steering the tanker deal and other work to Boeing, where she took a job after her retirement.
Following that scandal, the Pentagon assumed control over major Air Force acquisitions, gradually handing back control over the following years.
The Pentagon in 2008 canceled a $35 billion contract awarded to Northrop Grumman Corp and Europe's EADS after government auditors found problems with the Air Force's handling of the contract. Former Defense Secretary Robert Gates returned control of the tanker program to the Air Force in 2009.
Air Force acquisition chief David Van Buren told Reuters at the conference that the first phase of the investigation was expected to wrap up next week, and that senior officials from Kendall's office were already involved as part of that process.
He said he was not aware of any plans to reduce the requirements for the new light attack aircraft - a concern voiced on Wednesday by privately held Sierra Nevada Corp.
Sierra Nevada has urged the Air Force to quickly issue a plan for redoing the Afghan plane competition, arguing that it should review materials already submitted, rather than rewriting the terms of the competition or starting it over again.
Hawker Beechcraft, which had sued in federal claims court to reverse the contract award to Sierra Nevada and Embraer, and Sierra Nevada have said they would bid again for the work.
Hawker insists that its AT-6 plane is the most capable, affordable and sustainable light attack aircraft on the market. Sierra Nevada said the Embraer A-29 Super Tucano is combat-proven and in use by six air forces around the world.