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Gates On Tanker Rebid: "Not A Return To First Step"

Wednesday, 9 Jul 2008 | 1:59 PM ET

Defense Secretary Robert Gates has made it official. The Air Force tanker contract will be rebid. He says a decision on who will build the tanker is supposed to be made by December, it will address all of the GAO findings, and he is transferring the authority to pick a winner to the Pentagon, away from the Air Force. Sec. Gates says, however, "This does not represent a return to the first step of the procedure."

(Northrop Grumman/EADs had been awarded the $35 Billion contract over Boeing, and Boeing had been contesting the contract.)

Gates is putting Under Secretary John Young in charge of picking a winner, a final blow to the Air Force. But Acting Secretary of the Air Force Mike Donnelly says he fully supports that decision.

Donnelly was not on the job during the original source selection process, having been hired only a few weeks ago after Gates fired top Air Force brass. Donnelly feels that in an environment of fewer contracts and fewer contractors, putting the Pentagon in control is a "appropriate and necessary step" to ensure the confidence of Congress and the public.

Under Secretary Young says once a selection is made (adding that the December deadline "is a goal"), the Air Force will be in charge of managing and executing the contract. He says the Defense Department will expedite the decision making process, but not expedite the steps in the process, saying it will be done "methodically, fairly, and showing no bias." He hopes to change "the minimum amount of things" in the new bidding process, rather than changing all the rules.

Secretary Gates adds that he hopes to avoid another challenge by communicating honestly with both companies (another slap at the Air Force), so that there is "nothing done that is not fair."

NORTHROP GRUMMAN RESPONDS:
Here is the statement from Northrop Grumman to today's announcement:
"Northrop Grumman Corporation (NYSE:NOC) applauds Defense Secretary Gates and Under Secretary Young for recognizing that the acquisition of replacement refueling tankers for the Air Force should be put on a path toward quick closure. We are reviewing the decision to ensure the re-competition will provide both companies a fair opportunity to present the strengths of their proposals. The United States Air Force has already picked the best tanker, and we are confident that it will do so again. Our men and women in uniform deserve nothing less. The Northrop Grumman KC-45 tanker is needed now and is ready now."

Tanker Competition Reopened
A new decision on tanker contracts might be reopened by the year's end, reports CNBC's Jane Wells

Update: Here is the Boeing statement on the announcement:
"We welcome the decision by Defense Secretary Robert Gates not to proceed with the contract award to Northrop Grumman/EADS and to reopen the KC-X tanker competition. However, we remain concerned that a renewed Request for Proposals (RFP) may include changes that significantly alter the selection criteria as set forth in the original solicitation. As the Government Accountability Office reported in upholding our protest, we submitted the only proposal that fully met the mandatory criteria of the original RFP.
"We look forward to working with the new acquisition team as it reopens the competition, but we will also take time to understand the updated solicitation to determine the right path forward for the company.
"It's encouraging that the Defense Department intends to take steps to ensure a fair and open competition that, among other things, fully accounts for life-cycle costs, such as fuel, to provide the most capable tanker at the best value for the American taxpayer."

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  • Based in Los Angeles, Jane Wells is a CNBC business news reporter and also writes the Funny Business blog for CNBC.com.

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