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Gates weighs in on tanker dispute

The defense chief's vow follows a GAO report on mistakes.

June 26, 2008|From the Associated Press

WASHINGTON — Defense Secretary Robert M. Gates pledged to oversee a disputed $35-billion tanker contract after congressional investigators Wednesday detailed numerous mistakes the Air Force made in awarding the deal to Northrop Grumman Corp. and its European partner over Boeing Co.

The Government Accountability Office found the Air Force failed to evaluate both refueling tanker proposals based on the same merits and repeatedly offered unfair preference to the team of Northrop and Airbus parent European Aeronautic Defense and Space Co. The extended report comes a week after the GAO upheld Boeing's contract protest and recommended the Air Force hold a new competition.

The GAO said that although the Air Force's decision was based on the "best value" for the government, its rationale "was undermined by a number of prejudicial errors that call into question" whether Northrop's bid was "technically acceptable."

The government watchdog found that the Air Force offered the Northrop/EADS team extra credit for exceeding a fuel offload requirement when both teams "should have received equal credit."

The GAO also agreed with Boeing that the Air Force did not establish in advance any size requirements for the aircraft. Although a larger tanker like Northrop's could provide greater refueling capabilities, there also could be possible disadvantages with respect to costs and space constraints.

The news did little to bolster Boeing on Wall Street, where the Chicago-based company's shares sank to a two-year low on negative analyst reports before rebounding slightly.

Gates was meeting Wednesday with Air Force and other Defense Department officials to discuss the tanker contract and determine how the GAO's recommendations could affect a decision to award a new deal, Pentagon Press Secretary Geoff Morrell said.

Although the department has 60 days to respond to the GAO report, Gates wants "to make sure that there are no further delays" and will be involved in any subsequent decision on the contract, Morrell said.

In February, the service selected the Northrop/EADS team to replace 179 Eisenhower-era aerial refueling planes. Boeing filed its protest with the GAO in March.

The contract has sparked a fierce backlash among lawmakers from Washington, Kansas and other states that stand to gain jobs if Boeing succeeds in landing the award. The new details from the GAO did little to ease tensions on Capitol Hill.

Boeing shares fell $5.15, or 6.9%, to $69.64 on Wednesday, after earlier hitting a two-year low of $69.16. Shares of Los Angeles-based Northrop Grumman added $1.12 to $70.37.

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