GAO Details Tanker Blunders

In awarding the contract for refueling planes, the Air Force told Boeing one thing, then did another, and made crucial math errors, an auditor's report says

By Keith Epstein

A new, fuller account of the June 18 auditor's ruling that gives Boeing (BA) another shot at a $35 billion contract for refueling tanker planes details numerous instances of "prejudicial" bungling by the U.S. Air Force as it weighed Boeing's bid against the chosen manufacturer, Northrop Grumman (NOC) and European partner European Aeronautic Defence & Space (EAD.PA), the parent of Airbus.

The Air Force made mistakes in math and procedure, failed to consider all information it was given, underestimated costs by hundreds of millions of dollars, changed specifications and ratings but only notified Northrop of the changes, and failed to check that the tankers could refuel all planes in the fleet, according to the 67-page Government Accountability Office ruling made public June 25.

If not for the mistakes, said the GAO, "we believe that Boeing would have had a substantial chance of being selected for award."

The disclosure came on the eve of a scheduled June 26 meeting between Defense Secretary Robert Gates and top acquisition officials to decide a course of action on the oft-delayed, controversial, and politically charged purchase of hundreds of tankers, one of the decade's most expensive military contracts.

Eventual possibilities (BusinessWeek.com, 6/18/08) include a new competition in which either company can win, or a split contract.

"Reopened, Reevaluated, and Rebid"

At Boeing, employees were thrilled by the detailed ruling. Under procedural rules, only lawyers are allowed to see it; not even executives of the companies have access. In a statement, Boeing said the decision "further validates Boeing's decision to protest this contract award" and that "it is clear the award was the result of a flawed process."

A tanker win could provide a boost to Boeing, beset with delays in its Dreamliner commercial jet plane and worries among investors about commercial aircraft orders as fuel prices rise. On June 25, the company's shares dropped to their lowest point in more than two years.

Northrop, meanwhile, did its best to emphasize the GAO ruling concerned the flawed process, not the merits of the chosen planes. Paul Meyer, Northrop's vice-president for the tanker program, stressed in a statement that "the GAO's issues with the contract do not reflect on the tankers' capabilities. …Northrop Grumman offered the superior tanker and nothing in the GAO analysis contradicts this essential truth."

But Loren Thompson, a defense analyst with the Lexington Institute in Washington who has close ties to the military, said the GAO document conveys a "sense of amateurishness" on the part of the Air Force. The only two plausible explanations for such bungling, he said, were incompetence or bias. Thompson suggested the Air Force tanker evaluation team "knew who they wanted to pick and skewed the results to support the outcome. Why else would they deviate from the rules?"

The additional details emerging from the GAO ruling also may provide helpful fodder for members of Congress to turn up the political heat. Says Boeing backer Rick Larsen, a Democratic representative from Washington State: "The full text of the GAO's decision makes it crystal clear that the tanker contract needs to be reopened, reevaluated, and rebid.