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Pentagon revises terms in EADS-Boeing battle

Latest update : 2008-08-07

The Pentagon has unveiled new terms for a 35-billion-dollar military contract being fought over by EADS of Europe and Boeing of the US. The contract was awarded to EADS and its US partner Northrop Grumman in February but later cancelled.

The Pentagon presented Northrop Grumman and Boeing with revised terms Wednesday for a 35-billion dollar contract to produce a new generation of aerial refueling tankers, a senior Pentagon official said.

The new draft "request for proposal" (RFP) addressed criticism by congressional auditors that forced the Pentagon to rebid a contract that had been awarded in February to Northrop Grumman and its European partner EADS, the official said.

"We are addressing them in a very measured and serious way to ensure that we can execute this procurement in a manner that is fair to both parties," said Shay Assad, a senior Pentagon acquisition official.

The contract is for 179 aircraft, the initial phase of a fleet replacement project worth some 100 billion dollars over the next 30 years.

Assad said the new draft proposal was presented to Northrop Grumman and Boeing.

Northrop Grumman applauded the Pentagon's decision to keep the contract on a fast track with a final decision due in the first week of January.

"We are reviewing the draft RFP with an eye toward ensuring that it addresses the issues raised by the GAO (Government Accountability Office) in a way that facilitates a fair and non-political evaluation of the competing bids," said Northrop vice president Randy Belote.

The changes also were briefed to members of Congress, where the air force's initial decision to award the contract to a team using EADS' Airbus airframe raised a storm of protests with protectionist overtones.

Assad said the revisions "are fully responsive to the GAO's direction, but I would not consider this to be a substantial modification to the RFP," Assad said.

The GAO in June upheld a challenge by Boeing, saying it found "significant errors" in the air force's evaluation of the two bids.

It agreed that the air force had conducted "unequal and misleading" discussions with Boeing, leading the company to believe it had satisfied a key performance parameter, only to decide later that it had only been partially fulfilled.

The GAO also found that Northrop had been given extra credit for offering an aircraft that carries more fuel than the KC-135 aircraft it is meant to replace, even though the solicitation said no consideration would be given for exceeding the performance parameters.

"We've tried to be meticulous in ensuring that the offerers have a very clear and unambiguous understanding of the relative order of importance of our requirements," Assad said.

He said the Pentagon will still give "positive consideration" to aircraft that can offload more fuel than the minimum required under the contract.

But it will now consider the cost of maintaining the aircraft over a 40 year life cycle, rather than a 25 year lifecycle, he said.

Assad said the Pentagon has established a timeline for discussions and consideration of the proposals that would lead to a decision in the first week of January.

The air force's attempts to find a replacement for its aging tanker fleet have run into setback after setback, beginning with a procurement scandal in 2003 that dashed its plans to lease the aircraft from Boeing.

Boeing has been the air force's sole supplier of air refueling aircraft, but its grip on the business slipped in February when the air force chose Northrop Grumman and EADS to build the next generation aircraft.

The air force preferred their KC-45 entry, a militarized version of the Airbus 330, because it was larger and could carry more fuel and cargo than Boeing's KC-767, a modified version of the Boeing 767.

Both companies have mounted major public relations campaigns touting the manufacturing jobs gained or lost if one bid or the other succeeded.

They will have a period of time in which to study the new request for proposal before resubmitting their bids.

Date created : 2008-08-07

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