By Tim Hepher
WASHINGTON (Reuters) - The chief executive of Northrop Grumman Corp (NOC.N: Quote, Profile, Research, Stock Buzz) urged the incoming U.S. administration to revive the stalled procurement of aerial refueling tankers quickly and to base the decision on "best value" rather than lowest price.
Speaking at the Reuters Aerospace and Defense Summit in Washington on Monday, CEO Ron Sugar said Northrop was committed to winning the contract but backing a "low-ball" price would not necessarily be in the best interests of the U.S. military.
Defense Secretary Robert Gates canceled in September the $35 billion competition that pits Northrop and its European partner EADS (EAD.PA: Quote, Profile, Research, Stock Buzz) against Boeing Co (BA.N: Quote, Profile, Research, Stock Buzz), saying it had become too politicized to wrap up before the end of the Bush administration and should be decided by the new government.
President-elect Barack Obama's decision to keep Gates in office should provide some continuity, Sugar said, urging quick action on buying replacements for the current fleet of KC-135 refueling tankers, which are more than 45 years old on average.
"We would hope that we see a rapid restart of the program and ... that the competition will be conducted as a best value competition very much as the F-22 and the F-35 were conducted ... as opposed to just simply a low-ball bid," he said.
Rep. John Murtha, the head of a House of Representatives subcommittee with responsibility for defense spending, predicted last week that it would take at least two more years before the U.S. military began buying new tankers.
Northrop has urged the Pentagon to focus on the narrow problems raised by the nonpartisan Government Accountability Office in June when it upheld a protest by Boeing.
Sugar said Northrop would have to rethink its bid if U.S. lawmakers added protectionist requirements to the competition to ensure a certain number of jobs in particular congressional districts. Such considerations are not currently part of the way the Pentagon buys its weapons systems, he said.
The Pentagon's chief arms buyer, John Young, told reporters last month that officials are identifying minimum requirements for the tanker, and that one option would be to decide on price provided those requirements were met.
In the last competition, Young said Northrop beat Boeing's price for development and the first 68 aircraft by nearly $3 billion, a fact Sugar highlighted in his remarks on Monday.
"We won it ... It was clear that the tanker was substantially more capable and it has now been revealed that it was substantially less expensive, so what else do you need to know? But when you get into the realm of politics, strange things happen," he said.
He said Northrop intended to bid again and expected to win because it had a superior plane and a better price.
Sugar said he did not object to simplifying the requirements, but warned against moves that would encourage bidders to underbid the program, since that typically led to cost increases and revisions once a program began.
"So you end up making a decision based upon a low ball of minimal capability and the first thing you do once you get the award is you start booking change orders and adding capability back in ... and at the end of the day probably charging taxpayers more than you would have had you done a thoughtful best-value competition."
Sugar said he was not terribly concerned by news of a delay in EADS' planned delivery of refueling tankers to Australia, noting the slip was mainly due to requirements changes requested by Australia. Continued...
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