WASHINGTON (Reuters) - The U.S. Air Force on Tuesday abruptly canceled a $355 million contract awarded to Sierra Nevada Corp and Brazil’s Embraer (EMBR3.SA) for 20 light-support aircraft, citing problems with documents used to make the decision.
The Air Force, plagued by procurement scandals in the last decade, said it would terminate the contract, effective Friday, and investigate the award decision, which is being challenged in federal claims court by competitor Hawker Beechcraft.
“While we pursue perfection, we sometimes fall short, and when we do we will take corrective action,” Air Force Secretary Michael Donley said in a statement. “Since the acquisition is still in litigation, I can only say that the Air Force Senior Acquisition Executive, David Van Buren, is not satisfied with the quality of the documentation supporting the award decision.”
The Air Force told the companies it was 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.
General Donald Hoffman, commander of Air Force Materiel Command, has ordered an investigation, said Air Force spokeswoman Jennifer Cassidy. She declined to give further details since the bids submitted to the Air Force contained proprietary data from the companies.
News of the termination is a setback for the Air Force’s acquisition team, which has struggled to rebuild its reputation after a series of embarrassing reversals during a decade-long battle between Boeing Co (BA.N) and Europe’s EADS EAD.PA to build 179 refueling aircraft for the U.S. military.
“We have seen this movie before,” said Richard Aboulafia, an analyst with Virginia-based Teal Group.
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 in Afghanistan. The deal was potentially worth up to $1 billion, depending on future orders.
It 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, on Tuesday said it was disappointed by the Air Force decision and remained convinced that it would win the next competition.
“We know that our submission fully met the requirements of the U.S. Air Force Request for Proposal (RFP) and that Sierra Nevada Corporation fully complied with the RFP process as set out by the U.S. Air Force,” said Taco Gilbert, a retired Air Force general who heads Sierra Nevada’s intelligence, surveillance and reconnaissance business.
Gilbert told Reuters he did not expect the Air Force to abandon the competition entirely, despite mounting budget pressure, because the planes were still needed in Afghanistan.
He said the planes would be built in the United States, creating jobs at a time when unemployment remains high across the country. Embraer’s A-29 Super Tucano was built for counterinsurgency missions and is currently used by five air forces, with orders pending for others.
Embraer said it regretted the Air Force’s decision and awaited further clarification on the way forward.
Hawker welcomed the news and said the Air Force had reinstated it as eligible to compete.
“We look forward to competing for this contract as this important initiative moves forward,” Bill Boisture, the company’s chairman, said in a statement.
Hawker had offered its AT-6 light attack aircraft in the competition, arguing it would cost 25 percent less to acquire and would be “dramatically more cost effective” to maintain than the Embraer plane.
It said the contract award to Sierra Nevada would jeopardize 1,400 jobs in Kansas and other states, and idle one of the last manufacturing facilities in the United States capable of building a propeller-driven U.S. military aircraft.
The Air Force notified Hawker in November that its aircraft was not in the competitive range and had been disqualified. Hawker protested to the congressional agency that overseas federal contracts, and was twice rebuffed before filing its lawsuit in federal claims court.
Gilbert said the Air Force had found “multiple deficiencies and significant weaknesses” with the Hawker aircraft.
It was not immediately clear whether the issues cited with the documentation of the Air Force decision involved the Air Force’s handling of the issue, or whether there were problems in material submitted by the contractors.
Reporting By Andrea Shalal-Esa; additional reporting by Guillermo Parra-Bernal; Editing by Maureen Bavdek, Andre Grenon, Gary Hill, Daniel Magnowski