Boeing: We was robbed ... after we robbed others!

Boeing will file a protest over the award of a large Air Force tanker contract to Northrop/EADS. The appeal to the Government Accounting Office doesn’t come as a complete shock, as several members of Congress had openly supported such a move. In government contracting, however, the move is rare — and it shows the stakes involved for Boeing:

Boeing Co. said it plans to protest the Air Force’s decision to award a $40 billion contract for aerial refueling tankers to a team comprising Northrop Grumman Corp. and the parent company of rival Airbus.

The move sets up a protracted political fight over the use of foreign contractors for U.S. military jobs.

Boeing said it will file a formal protest today for the first time this decade, asking the Government Accountability Office to review the Air Force’s decision to give the contract to Northrop and European Aeronautic Defence & Space Co. …

The decision to go with a European-designed Airbus A330 jet, rather than Boeing’s 767 model, has set off a contentious debate over whether U.S. jobs will be sacrificed as a result. Boeing’s supporters in Congress have gone on the attack against the Air Force decision.

Appeals occur only rarely because of the nature of the relationships between the contractors and their clients. Companies like Boeing cultivate those relationships with procurement executives in the military branches and the government bureaus that decide on bids, just as any sales organization would. In defense contracting especially, there has been a historical understanding that companies will get their share of prime contracts as long as they play ball and don’t make waves that will embarrass their clients. Contractors who want to keep their relationships healthy don’t try to make their clients look bad by filing grievances against them.

Moreover, the GAO rarely reverses contract awards on appeal. Unless they find clear malfeasance or misrepresentation by either the customer or the winning bidder, the GAO assumes the customer understands their own needs best. Most contracts don’t have the political exposure that this tanker contract has acquired, however, and the GAO may feel some pressure to use a lower bar for action.

On what basis will Boeing appeal? They will focus on technical issues in the bid process, almost certainly. Boeing claims that the Air Force improperly changed the parameters of the competition to favor Northrop, and they may have a point:

In a highly risky move, Northrop threatened at one point to pull out of the competition if the Air Force didn’t change the way the aircraft would be evaluated. The demand paid off.

“Boeing allowed Northrop to skillfully shape the criteria for selecting the winning plane,” said Loren B. Thompson, a defense policy analyst who closely followed the tanker competition. “In particular they allowed Northrop to shape a scenario that made its larger plane more appealing.”

The Air Force needed a competition mainly because their initial attempt to simply lease 767s from Boeing came under fire from John McCain. He highlighted the deal as an example of unfair procurement practices — and as it turned out, he was correct. The deal resulted in criminal convictions for two Boeing executives, and it makes Boeing’s appeal something less than high-minded: the convictions came because Boeing had enticed an Air Force procurement official to game the contracting process in their favor.

Northrop forced an already-embarrassed Air Force to rethink the parameters of the contract, and that put Boeing at a disadvantage.  Boeing has a point about the rules changing in the middle of the game, but in large part, they created the environment in which that could happen.  It also allowed the Air Force to reconsider the application of the tanker for missions in the Pacific Rim, where fewer airfields requires larger-capacity tankers, and Northrop’s offering may make more sense.

Meanwhile, the politicians fulminate about the award going to an outside firm.  The time to consider that question was at the RFP stage, not the award stage.  If the government didn’t want the contract to go to a European firm, it shouldn’t have allowed EADS to bid on it.  And if the US wants to compete in the European market, it can’t act protectionist here.