GAO Turns Down Boeing Protest Over Bomber Contract -- Update

By Doug Cameron

Northrop Grumman Corp. can resume work on developing a new Air Force bomber after a federal overseer on Tuesday rejected a protest led by Boeing Co. on Northrop's contract for a program that could ultimately cost more than $80 billion.

The ruling by the Government Accountability Office follows Boeing's protest in November of an award that wound up one of the fiercest bidding contests in more than a decade. Northrop had to stop work on the classified program after Boeing and partner Lockheed Martin Corp. alleged that the Air Force selection was "irreparably flawed" because of its treatment of cost and performance estimates submitted by the opposing bidders.

The GAO could have opted to reopen the bidding or amend the existing contract, but soundly rejected the protest on Tuesday. The Air Force and Northrop had previously stood behind the award process.

"GAO reviewed the challenges to the selection decision raised by Boeing and has found no basis to sustain or uphold the protest," the agency said.

"In denying Boeing's protest, GAO concluded that the technical evaluation, and the evaluation of costs, was reasonable, consistent with the terms of the solicitation, and in accordance with procurement laws and regulations."

Boeing said that it would review the GAO's classified ruling and then decide on its next steps. Options include taking the Pentagon to court in an effort to reopen the bidding, analysts said.

The lack of big long-term military equipment deals in recent years has made protests increasingly commonplace, though less than a fifth are upheld by the GAO, a nonpartisan congressional watchdog.

Northrop said last month that it had included some revenue from work on the long-range strike bomber in its 2016 outlook, and planned to increase hiring on the program, which has been under development for several years.

The company was awarded a $21.4 billion deal in October to complete the bomber's development alongside a contract to build an initial 21 jets. The Pentagon didn't reveal the size of the production deal, but wants eventually to field 100 of the jets to replace aging aircraft such as the B-52, with the first aircraft put into service in 2025. Analysts estimate the total cost of the program at $80 billion.

The Pentagon's fiscal 2017 budget request last week included $12.1 billion for research and development in the bomber program over the next five years. Such requests typically take one to two years to turn into revenue for contractors, and the Air Force hasn't detailed Northrop Grumman's partners on the program.

The GAO's decision moves attention for now to the two next big Air Force contracts expected to be awarded over the next two years, including a fleet of new training jets and the JSTARS reconnaissance plane.

The rejection of Boeing's protest also increases the importance of securing more overseas orders for the company's existing combat aircraft, including a potential deal to sell F/A18s to Kuwait and F-15s to Qatar. The latest Pentagon budget did allocate funds for more F/A-18s for the Navy.

Generally, most company protests of federal contract awards involve concerns about the government's fairness in setting requirements or implementing evaluation criteria.

The GAO received more than 2,500 protests in 2014, slightly more than half of them involving Pentagon deals. The annual rate has climbed 45% since 2008 when adjusted for lower government spending, according to the Congressional Research Service.

Write to Doug Cameron at doug.cameron@wsj.com

(END) Dow Jones Newswires

February 16, 2016 18:26 ET (23:26 GMT)

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