July 1, 2008 / 4:57 PM / 11 years ago

UPDATE 2-Air Force hasn't asked GAO to review tanker ruling

(Adds byline, Air Force, company and analyst comments)

By Andrea Shalal-Esa

WASHINGTON, July 1 (Reuters) - The U.S. Air Force said on Tuesday it had not asked the Government Accountability Office to reconsider its June 18 decision upholding Boeing Co’s (BA.N) protest against a $35 billion contract awarded to Northrop Grumman Corp (NOC.N) and EADS EAD.PA.

“The Air Force has not requested reconsideration by the GAO,” said Air Force spokesman Lt. Col. Karen Platt.

Under federal rules, the service has 10 days to ask the GAO to reconsider its decision “after the basis of reconsideration is known or should have been known, whichever is earlier.”

The Air Force did not file any request during the initial 10-day period after the decision, but Platt said its lawyers were continuing to review the ruling and could still request reconsideration within 10 days of discovering the basis for such a request.

“We are still reviewing the GAO decision ... and we are still identifying the best way forward,” she said. “Just because we have not gone to the GAO doesn’t mean we don’t have that right in the future. It’s not a done deal.”

The Air Force technically has 60 days to respond to the GAO ruling, although defense officials and analysts say they expect a decision much sooner — possibly within two weeks.

Virginia-based defense analyst Jim McAleese said the Air Force’s failure to file an initial appeal made it likely that it would follow the GAO’s recommendation to seek new proposals and rerun the competition for new aerial refueling aircraft.

“As a practical matter, they have waived their right to appeal,” McAleese said. He said the Air Force would have immediately expressed its outrage if the GAO ruling had “egregiously misapplied the facts or the law.”

“They have fundamentally committed to at least taking the minimal corrective action recommended by the GAO,” he said, noting the service could always still seek clarification from the GAO on what corrective actions would be acceptable.

The Air Force surprised the defense community in February when it chose Northrop and EADS, a European aerospace giant, to build 179 tanker aircraft used to refuel warplanes in mid-air. The 15-year contract is the first of three acquisition phases for what the Air Force calls its number-one purchase priority.

The GAO upheld Boeing’s protest on June 18, and said it believed Boeing would have had a “substantial chance of being selected” if not for flaws in the evaluation process.

It said it found “a number of prejudicial errors” linked to the technical advantages of the Northrop proposal, as well as errors in the cost evaluations of the rival bids. But it also said that it denied many of Boeing’s challenges to the award.

Northrop declined to comment on the Air Force decision, but said it hoped the matter was resolved soon. “We hope that the Air Force can move quickly through this phase so that we can get badly needed tankers into the fleet as soon as possible,” said spokesman Randy Belote.

Boeing also declined to comment, and said it was awaiting a decision on the Air Force’s next steps. “We’re looking forward to seeing how our customer decides to move and then we’ll support them in that effort,” said Boeing spokesman Walt Rice.

U.S. Defense Secretary Robert Gates last week indicated he was taking a strong personal interest in the case, but had not yet decided whether to reopen the botched competition.

Gates, Deputy Defense Secretary Gordon England and the Pentagon’s chief weapons buyer, John Young, have met several times to discuss the issue, a Pentagon spokesman said.

Young was briefed by Air Force officials on Monday about several specific options for resolving the issue, according to one source briefed on the matter, who asked not to be named.

McAleese said the Pentagon, in consultation with the Air Force, now had four options:

— asking both companies to submit new “best and final offers” and then reevaluating them;

— signing a system development contract with Boeing as well, and then asking Congress to provide additional funding;

— giving both companies money to build tanker prototypes, delaying a final contract award for at least a year;

— or going back to reevaluate and possibly revise the requirements and key performance parameters for the tankers, which would delay a contract award for at least 18 months.

The Air Force did appeal the GAO’s decision in a separate protest case involving a $15 billion contract for search and rescue helicopters that was also won by protesting parties.

In that case, the GAO denied the Air Force’s request and the service ultimately agreed to redo the competition. (Editing by Brian Moss and Braden Reddall)

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