U.S. watchdog faults Air Force on Boeing contract
Thursday December 27, 7:26 pm ET
By Jim Wolf
WASHINGTON (Reuters) - The U.S. Government Accountability Office on Thursday faulted the Air Force again for its handling of a contract with Boeing Co (NYSE:BA - News), upholding in part a protest by rival Pemco Aviation Group Inc (NasdaqGM:PAGI - News).
At issue is a potential $1.2 billion contract for depot maintenance of KC-135 mid-air refueling aircraft awarded to Boeing over Pemco on September 10.
Pemco, based in Birmingham, Alabama, said it was "extremely pleased" by the GAO ruling. The company maintains and modifies aircraft for the U.S. government and other customers. It also develops and manufactures rocket vehicles and control systems.
The GAO decision was the latest setback of an Air Force deal with Boeing, scarred by a corruption scandal that landed two company officials in prison in 2005.
The service is likely to undergo more scrutiny as it awards a contact for 179 refueling tankers worth about $40 billion, described by Air Force Secretary Michael Wynne as his top acquisition priority.
Boeing is competing against a team made up of Northrop Grumman (NYSE:NOC - News) and Airbus parent EADS (Paris:EAD.PA - News) for the contract, due to be awarded no sooner than late February.
Recent GAO rulings have upheld protests from other bidders and prompted the Air Force to rerun a contest for a potential $15 billion combat rescue helicopter fleet that was originally given to Boeing.
Pemco claimed the Air Force's evaluation of the KC-135 deal was flawed in several ways, including its tally of the rivals' past performance, mission capability, and cost and price data.
"Our decision sustains the protest challenging the cost/price evaluation because the record does not reflect any Air Force analysis as to the realism of certain changes Boeing introduced in its final proposals," said the GAO, Congress's non-partisan audit and investigative arm.
Nor did the record show any Air Force analysis of the potential risk associated with the changes made by Boeing although one was required, the GAO said in a statement.
The GAO recommended the Air Force perform and document the work it found was missing.
In a one-sentence response, Lt. Col. Jennifer Cassidy, an Air Force spokeswoman, said the service would evaluate the GAO ruling, which is a recommendation, not an order.
Boeing remained confident it will "again be determined to have offered the best value to the Air Force for the KC-135" contract, said Forrest Gossett, a company spokesman.
Pemco spokeswoman Doris Sewell said, "We believe firmly that proper evaluation of the proposals will establish Pemco clearly as the low-cost, low-risk provider for KC-135 service." Pemco is changing its name to Alabama Aircraft Industries Inc. on January 1.
Pemco's protest submission included allegations of pro-Boeing bias by Charles Riechers, the Air Force's No. 2 arms buyer until he was found dead on October 14, an apparent suicide.
Riechers had been responsible for the choice of Boeing over Pemco, the GAO said.
Days before Riechers' death, Pemco amended its protest to charge a possible conflict of interest because of ties among Commonwealth Research, which briefly employed Riechers while he awaited White House approval for his new Air Force job; its corporate parent, Concurrent Technologies Corp; and Boeing.
The GAO voiced no opinion on Pemco's bias allegations in light of what it said were local and federal investigations and its own past practice.
One of Riechers' predecessors as the Air Force's No. 2 arms buyer was Darleen Druyun, who served nine months in prison for negotiating a job with Boeing even as she oversaw billions of dollars of the company's contracts.
Druyun testified in court that she had steered multibillion-dollar deals to Boeing while seeking jobs for herself, her daughter and a son-in-law. Her testimony doomed a $23.5 billion Air Force plan to lease, then buy 100 modified Boeing 767s as refueling tankers.
Boeing shares closed down 1.24 percent at $88.88, in line with a Thursday decline in the Dow Jones Industrial Average. Pemco shares lost 4.84 percent to close at $1.77 per share.
(Reporting by Jim Wolf; Editing by Leslie Gevirtz)