GAO to Air Force: Rebid tanker contract

The United States Government Accountability Office (GAO), Congress' investigative arm, today told the Air Force that it strongly suggested reopening the competition for a contract to build refueling tankers, sustaining Boeing's protest of an award to Airbus and Northrop Grumman (PDF document):

The agency also made a number of other recommendations including that, if the Air Force believed that the solicitation, as reasonably interpreted, does not adequately state its needs, the Air Force should amend the solicitation prior to conducting further discussions with the offerors; that if Boeing’s proposal is ultimately selected for award, the Air Force should terminate the contract awarded to Northrop Grumman; and that the Air Force reimburse Boeing the costs of filing and pursuing the protest, including reasonable attorneys’ fees.

By statute, the Air Force is given 60 days to inform the GAO of the Air Force’s actions in response to GAO’s recommendations.

The GAO said it sustained Boeing's protest for these reasons:

(1) The Air Force, in making the award decision, did not assess the relative merits of the proposals in accordance with the evaluation criteria identified in the solicitation, which provided for a relative order of importance for the various technical requirements. The agency also did not take into account the fact that Boeing offered to satisfy more non-mandatory technical “requirements” than Northrop Grumman, even though the solicitation expressly requested offerors to satisfy as many of these technical “requirements” as possible.

(2) The Air Force’s use as a key discriminator that Northrop Grumman proposed to exceed a key performance parameter objective relating to aerial refueling to a greater degree than Boeing violated the solicitation’s evaluation provision that “no consideration will be provided for exceeding [key performance parameter] objectives.”

(3) The protest record did not demonstrate the reasonableness of the Air Force’s determination that Northrop Grumman’s proposed aerial refueling tanker could refuel all current Air Force fixed-wing tanker-compatible receiver aircraft in accordance with current Air Force procedures, as required by the solicitation.

(4) 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, without advising Boeing of this change in the agency’s assessment and while continuing to conduct discussions with Northrop Grumman relating to its satisfaction of the same key performance parameter objective.

(5) The Air Force unreasonably determined that Northrop Grumman’s refusal to agree to a specific solicitation requirement that it plan and support the agency to achieve initial organic depot-level maintenance within two years after delivery of the first full-rate production aircraft was an “administrative oversight,” and improperly made award, despite this clear exception to a material solicitation requirement.

(6) The Air Force’s evaluation of military construction costs in calculating the offerors’ most probable life cycle costs for their proposed aircraft was unreasonable, where the agency during the protest conceded that it made a number of errors in evaluation that, when corrected, result in Boeing displacing Northrop Grumman as the offeror with the lowest most probable life cycle cost; where the evaluation did not account for the offerors’ specific proposals; and where the calculation of military construction costs based on a notional (hypothetical) plan was not reasonably supported.

(7) The Air Force improperly increased Boeing’s estimated non-recurring engineering costs in calculating that firm’s most probable life cycle costs to account for risk associated with Boeing’s failure to satisfactorily explain the basis for how it priced this cost element, where the agency had not found that the proposed costs for that element were unrealistically low. In addition, the Air Force’s use of a simulation model to determine Boeing’s probable non-recurring engineering costs was unreasonable, because the Air Force used as data inputs in the model the percentage of cost growth associated with weapons systems at an overall program level and there was no indication that these inputs would be a reliable predictor of anticipated growth in Boeing’s non-recurring engineering costs.

Today's news is a big deal for Boeing and Washington State Democratic leaders (including Governor Gregoire and Senators Cantwell and Murray, who all issued statements praising the GAO review).

Not only did the GAO give the Air Force a stern rebuke today, it also told it to pay for the costs of Boeing's protest.

The GAO review does not mean the tanker contract will go to Boeing. However, if the Air Force conducts a fair competition, there's a good chance Boeing could come out on top. Loren Thompson, an expert at the Lexington Institute, has plainly sketched out how bizarre the Air Force's conclusions were:

The Air Force refused to consider Boeing cost data based on 10,000,000 hours of operating the commercial version of the 767, substituting instead repair costs based on the 50-year-old KC-135 tanker. It said it would not award extra points for exceeding key performance objectives, and then proceeded to award extra points. It said it wanted to acquire a "medium" tanker to replace its cold war refueling planes, and ended up picking a plane twice as big.

Whatever else this process may have been, it definitely was not transparent. Even now, neither of the competing teams really understands why the competition turned out the way it did. It would be nice to hear from the Air Force about how key tradeoffs were made, because at present it looks like a double standard prevailed in the evaluation of the planes offered by the two teams.

Thompson's analysis does a really good job of concisely explaining all the holes in the Air Force's justification for giving the award to Northrop and Airbus.

Maybe with new leadership at the Air Force, we can have a competition that doesn't give either side an inside advantage.

UPDATE: Sounds like Northrop's political allies are stunned by the news. They must have thought they had this one in the bag. What a shame!

Alabama Governor Bob Riley was in an editorial board meeting at Bloomberg headquarters in New York when he learned of the news, which will create further delay in Northrop's plans to build the tankers in his state and create at least 1,500 jobs.

"Oh, God, that's not good," said Riley, a Republican serving his second term. Earlier, he said it would take "an absolute nutcase" to prefer the Boeing bid over Northrop's.

Only an absolute nutcase would think that giving a European dominated consortium preferential treatment for a lucrative military contract was okay.

If the competition is rigged, it's not a competition at all. What's not good is the Air Force's inability to conduct an impartial bidding process.