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Wednesday, June 18th, 2008

Boeing’s Air Force Petition Sustained, Back in Running for $35 Billion Contract

By Mike Caggeso
Associate Editor

The Government Accountability Office backed The Boeing Co.’s (BA) petition that the U.S. Air Force altered the auction for a $35 billion aerial-tanker contract - a bid that went to rivals Northrop Grumman Corp. (NOC), and in turn, helped push Boeing’s stock down more than 11%.

Boeing filed the complaint in early March, claiming that the Air Force misled the company and modified its specifications to accommodate models made by Northrop and Airbus S.A.S.

The GAO agreed.

“The Air Force conducted misleading and unequal discussions with Boeing by informing Boeing that it had fully satisfied a key performance parameter objective relating to operational utility, but later determined that Boeing had only partially met this objective,” according to the GAO, as reported by MarketWatch.

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The ruling is critical because the contract in question could be decades-long and grow to $100 billion in value. Obviously, Boeing is thrilled with the GAO’s decision.

“We welcome and support today’s ruling by the GAO fully supporting the grounds of our protest,” Mark McGraw, vice president of Boeing’s Tanker Programs, said in a statement. “We appreciate the professionalism and diligence the GAO showed in its review of the KC-X acquisition process. We look forward to working with the Air Force on next steps in this critical procurement for our warfighters.”

As for what’s next, that answer lies somewhere between nothing and everything because GAO rulings are only advisory. The Air Force isn’t required to follow the recommendation to change its flight plan. But if it chooses not to, it would have to explain to Congress why, Bloomberg reported.

The Air Force has 60 days to respond to the GAO’s ruling, and even if accepted, Boeing is far from being a shoe-in for the contract.

“To be successful in any potential re-competition, Boeing must demonstrate that it is either technically superior at a reasonable cost/price-premium, or that it is significantly lowest-evaluated-cost,” Jim McAleese of McAleese & Associates, a government contracting and national-security law firm unaffiliated with the protest, told Bloomberg.

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