GAO Details Tanker Blunders

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Faulty Evaluations

In one instance described in the GAO ruling, the Air Force told Boeing it would not give extra credit for exceeding fuel capacity requirements with a larger plane—a key performance parameter used to compare the companies' planes with each other. But then the Air Force decided the refueling ability of Northrop's larger plane, based on the Airbus A330, was "a major discriminator and of operational benefit." Boeing's tanker is based on a 767 commercial jet airframe.

In arguments before the GAO, the Air Force tried to argue that "common sense" allowed it to consider "unbounded" refueling capabilities—even if those capabilities turned out to be different from what was specified in the original solicitation.

The GAO disagreed, noting that "it is a fundamental principle of competitive procurements that competitors be treated fairly, and fairness in competitions for federal procurements is largely defined by an evaluation that is reasonable and consistent with the terms of the solicitation."

In another instance of clumsy evaluating, the Air Force underestimated likely construction costs associated with Northrop's tanker by $122.5 million, while overestimating Boeing's by $3.3 million—an error that helped the service favor Northrop. The correct estimate would have been about even for the two planes, at about $108 billion.

The mistakes apparently went unnoticed until the Air Force discovered five errors while defending itself before the GAO.

The Air Force even asked Boeing and Northrop for their own estimates, specifying that they be drawn up for Fairchild Air Force Base near Spokane, Wash., home of the Air Mobility Command. But then the Air Force failed to consider those estimates.

More Missteps

The GAO concluded: "The selection of Northrop Grumman's proposal as reflecting the best value to the government was undermined by a number of prejudicial errors that call into question the Air Force's decision."

The Air Force evidently skipped some basics, as well—such as figuring out whether the competing companies' refueling tankers, essentially flying gas stations, would be able to refuel all aircraft in the U.S. jet fleet. States the GAO: "The record does not demonstrate that the agency reasonably determined that Northrop Grumman's proposed aircraft would be able to refuel all current Air Force fixed-wing tanker-compatible receiver aircraft, in accordance with current Air Force procedures."

Another misstep, according to the GAO, involved an evaluation of the Boeing tanker's "net ready capability"—computer and communications systems that provide secure, effective data exchanges between the aircraft and U.S. and allied forces.

Before submitting a final proposal, contractors have a meeting known as a "midterm briefing." At Boeing's briefing, Air Force officials said they were wary of an "uncertainty"—not further explained by the GAO—involving the computer and communications system. After Boeing revised that part of its proposal, the Air Force told the company its requirements were now "met."

But the Air Force then changed Boeing's grade on this aspect of its proposal, to "partially met."

Misleading Contracting

The Air Force's explanation: When officials changed their minds, it was too late to tell Boeing. "The Air Force does not dispute that it informed Boeing during discussions that it had satisfied all of the thresholds and the objective" for net ready capability, the GAO noted. But the Air Force "contends that at the time it later determined that Boeing had not fully satisfied this objective, discussions had already been closed."

Added the GAO: The Air Force "argues that…it was under no obligation to inform Boeing of the changed evaluation rating." The GAO disagreed, saying "it is a fundamental precept of negotiated procurements that discussions, when conducted, must be meaningful, equitable, and not misleading."

In contrast, noted the GAO, the Air Force notified Northrop that it had only partially met the requirement, allowing the company another chance to make revisions before submitting a final proposal.

"In short, the Air Force misled Boeing when the agency advised the firm that it met this objective, and did not reopen discussions with Boeing on this issue. The Air Force also treated the firms unequally when it provided Northrop Grumman, but not Boeing, with continued discussions on this same objective. It is axiomatic that procuring agencies may not conduct discussions in a manner that favors one offeror over another."

The GAO added that "we also find a reasonable possibility that Boeing was prejudiced by the Air Force's misleading and unequal discussions."

The GAO didn't side with Boeing on every claim within its protest. For instance, the GAO upheld the Air Force's evaluation of Boeing and Northrop's past performance. The Air Force had given Northrop a "satisfactory confidence" rating. Boeing was rated "marginal" because of poor management on three unspecified contracts in the past.

Epstein is a correspondent in BusinessWeek's Washington bureau.