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UPDATE 1-US tanker competition rules due out Wednesday
February 23, 2010 / 6:21 PM / 8 years ago

UPDATE 1-US tanker competition rules due out Wednesday

* Air Force opposes buying both airplanes

* Officials to brief lawmakers

WASHINGTON, Feb 23 (Reuters) - The U.S. Air Force will release the final terms for its top acquisition priority -- a $35 billion competition to begin replacing its current 50-year-old refueling planes -- on Wednesday, top officials told lawmakers Tuesday.

Air Force Secretary Michael Donley defended the service’s decision to revamp its acquisition approach after government auditors upheld a protest filed by Boeing Co (BA.N) against a February 2008 contract awarded to Northrop Grumman Corp (NOC.N) and its European partner EADS EAD.PA.

Both companies have a chance to win the new competition, Donley told the House Armed Services Committee, noting that the Air Force is determined to ensure an open, fair and transparent process this time around.

Donley said the service had decided to “lock down the details” after the Government Accountability Office found too much subjectivity in the previous process. He rejected criticism from a Northrop supporter on the committee that the changed approach favors Boeing’s smaller 767 tanker.

Northrop has told the Pentagon that it will not bid for the contract this time around unless the Air Force makes significant changes to draft terms released in September.

Northrop officials argue that the Air Force turned the previous “best value” competition into a “price shootout” by insisting on 373 pass-fail requirements for the new planes, while giving no credit for additional capabilities unless the price of the competing offers were only 1 percent apart.

Air Force officials say this approach removes subjectivity from the process, and guarantees the service will get an airplane that meets all its requirements from the first day.

Donley also rejected calls by some Northrop supporters for moves to buy planes from both companies, saying such a move would significantly increase procurement spending and eat up resources the Air Force needs for other programs.

“This would be an expensive way to proceed. We would rather not have a split buy or dual buy,” Donley told lawmakers.

He said the minimum economic order quantity for each company would be around 12 airplanes, which would increase the number of projected airplane purchases from around 15 per year to 24, and account for “a big lump of our dollars.”

Donley said the current plan is for the Air Force to award a contract to a single manufacturer, given the Air Force’s need to manage its procurement of new tankers in the context of other priorities.

Donley, Deputy Defense Secretary William Lynn, and Pentagon acquisition chief Ashton Carter are due to brief lawmakers on the final terms for the competition on Wednesday, followed by a news conference at the Pentagon.

Industry officials said they would need to review the final terms closely before issuing any substantive statements.

“The devil really is going to be in the details,” one industry official who was not authorized to speak publicly told Reuters on Monday. “I don’t think it’s predetermined.”

The official said it was apparent that Northrop was ready to walk away from the competition if it did not see changes that would allow the company to submit a competitive bid. (Reporting by Andrea Shalal-Esa, editing by Gerald E. McCormick)

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