November 6, 2015 / 1:48 PM / 4 years ago

Boeing, Lockheed protest U.S. Pentagon's bomber award to Northrop

(Reuters) - Boeing Co (BA.N) and Lockheed Martin Corp (LMT.N) on Friday filed a formal protest against the U.S. Air Force’s contract with Northrop Grumman Corp (NOC.N) for a new long-range strike bomber, saying the selection process was “fundamentally flawed.”

Northrop Grumman Corp CEO Wes Bush takes part in the Reuters Aerospace and Defense Summit in Washington September 7, 2011. REUTERS/Kevin Lamarque

The Pentagon’s two largest suppliers, who worked as a team on the bid, said they believed the Air Force “did not properly reward the contractors’ proposals to break the upward-spiraling historical cost curves of defense acquisitions, or properly evaluate the relative or comparative risk of the competitors’ ability to perform.”

The Air Force last week selected Northrop, maker of the stealth B-2 bomber, to develop and build the new bomber.

Under federal law, the U.S. Government Accountability Office, an arm of Congress that rules on federal contract protests, now has 100 days to evaluate the issue.

The GAO said its ruling was due on Feb. 16, 2016.

Northrop said that as the only company to design and build a stealth bomber, it was the best option.

“Northrop Grumman Corporation is disappointed that its former LRS-B competitors have decided to disrupt a program that is so vital to national security,” said Randy Belote, vice president of strategic communications.

The Air Force said that while Boeing had the right to protest, it was “confident that the source selection team followed a deliberate, disciplined and impartial process.”

“Once resolved, we look forward to proceeding with the development and fielding of the LRS-B aircraft,” said Major Robert Leese, an Air Force spokesman.

Analysts had widely expected either losing team to protest the award, given the high stakes and the dearth of other large-scale U.S. arms programs in coming years.

The decision to file the protest reflected concerns about the Air Force’s use of cost data from earlier bomber programs to assess the pricing of the planes, devaluing innovations and new manufacturing processes implemented in recent years, according to two sources familiar with the companies’ thinking.

Boeing and Lockheed also believe the Air Force failed to properly evaluate the risks involved with Northrop’s bid since the company has been a supplier, not prime contractor, on military aircraft programs in recent years, the sources said.

Loren Thompson, a defense consultant with close ties to Boeing and Lockheed, said the review led by Boeing General Counsel Michael Luttig, a former federal judge, concluded that there was solid grounds for challenging the award.

“This is shaping up to be a replay of the tanker award when Boeing challenged the way in which Northrop was awarded a future Air Force program,” he said.

The Air Force later canceled that contract with Northrop and ultimately selected Boeing to build the refueling planes.

In a column in Forbes magazine on Friday, Thompson said the official estimate that it would cost $21.4 billion to develop the plane was roughly twice what the competing industry teams bid. It also leaves the government liable for possible cost overruns - despite repeated calls by lawmakers for a different approach.

He said the Air Force chose Northrop’s bid because of its “rock-bottom” price for developing the plane, and never rigorously analyzed the cost of production or maintenance over the life of the aircraft.

Reporting by Andrea Shalal in Dubai; Additional reporting by Idrees Ali in Washington; Editing by W Simon and Matthew Lewis

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