Northrop Grumman threatens to quit competition for tanker

Northrop Grumman on Tuesday threatened to pull out of the competition to win a $40 billion contract to build a new Air Force refueling tanker.

In a letter to the Pentagon, the defense giant argued the bidding process was stacked against it, and that without changes to the selection criteria, it could not submit an offer.

If Northrop pulls out, Boeing would be the only company bidding for the contract. That would run afoul of congressional preferences for competition on all major defense contracts.

A Defense Department official, who asked not to be quoted by name, said Tuesday that the Pentagon wants to see competition but cannot compel the two airplane makers to compete.

Boeing has been in a lobbying and public-relations war with Northrop and its partner EADS North America, the parent company of Airbus, for years over the contract. The Air Force awarded a $35 billion contract to Northrop and EADS last year, but Boeing overturned that victory by successfully protesting the award with the Government Accountability Office.

In a letter to Pentagon acquisition chief Ashton Carter, Northrop Grumman President and Chief Operating Officer Wes Bush said his company has determined it cannot submit a bid for the contract unless defense officials  “substantially” address Northrop’s concerns when it releases its final request for proposals (RFP).

Northrop said that it had asked Pentagon officials to issue a second draft of their request for proposals to allow the companies more input on the way Pentagon officials addressed their initial concerns. The Pentagon informed Northrop it would not issue a second draft, according to the letter.

Among Northrop Grumman’s concerns is that the Pentagon has a “clear preference” for “a smaller aircraft with limited multi-role capability.”

Northrop Grumman is competing for the contract with the Airbus 330, a larger plane than the 767 that Boeing is expected to offer. Northrop Grumman is also taking issue with the “imposition” of “contractual and financial burdens on that company that we simply cannot accept,” Bush said.

Bush said his company has determined it cannot submit a bid for the contract unless defense officials  “substantially” address Northrop’s concerns when the Pentagon releases its final RFP.

“As a result I must regrettably inform you that absent a responsive set of changes in the final RFP, Northrop Grumman has determined it cannot submit a bid to the Department for the KC-X tanker program,” Bush wrote in the letter, which was obtained by The Hill.

“The Department’s responses to date to our submitted questions suggest that the Department is not planning to substantially address our concerns in the final release of the RFP,” Bush wrote to Carter. "It is my hope that the Department will elect to modify its approach to this procurement in a way that would enable us to offer our product for your consideration."

Some of Northrop’s and EADS’s biggest supporters have already sounded alarm about the draft RFP. Northrop plans to assemble the tankers in Mobile, Ala.

“The draft RFP is practically a sole source contract to Boeing. It’s a sham. If the Air Force wants a true competition — one that aims to procure the best product for our warfighter — it must fundamentally alter the current framework,” Sen. Richard Shelby (R-Ala.), a defense appropriator, said in a statement Tuesday.

The Pentagon official said that both Northrop and Boeing have suggested changes to the RFP that would favor their offering. Both companies can make a “good tanker,” the official said.

“The department cannot and will not change the warfighter requirements for the tanker to give advantage to either competitor,” the official said. “The department has played this right down the middle and will continue to do so.”

This is not the first time Northrop Grumman has threatened to bow out of the competition. It also made the threat during the bidding process two years ago, which it eventually won.

The win was nullified after Boeing successful protested to the Government Accountability Office. That led the Pentagon to reopen the competition.

Competition for the Air Force’s tanker contract only began after a lease deal with Boeing was thwarted, eventually landing two Boeing officials in prison for corruption.

This story was updated at 4:50 p.m.