Quick Analysis: The Repercussions of the Litigious Tanker CompetitionJune 18, 2009

 

tanker

U.S. Defense Secretary Robert Gates said in June that the Pentagon is close to requesting proposals for new refueling aerial tankers – its third attempt to replace the aging tankers, in service since the 1950s.

The first effort collapsed in a procurement scandal, in which two Boeing executives and a former U.S. Air Force procurement officer were sentenced to prison. Boeing contested the second contract for 179 tankers, which was awarded to Northrop Grumann, again bringing the process to a halt.

The major defense contractors are now anxiously awaiting the third proposal. "On the tanker, I'm probably within a few days of making a decision on the structure of how we're going to go about the process and who will be the acquisition authority and so on," Gates said, according to Reuters.

"And I still am hoping that we can get an RFP (request for proposals) out mid-summer or thereabouts."

As the Pentagon gets closer to releasing its proposal request, the major contractors are preparing their best bids. Boeing said it is considering using either its 767 or its larger 777 as the base for the tanker, but will decide after the Pentagon releases the requirements, Reuters reported. Northrop had won the second contract with a modified Airbus A330.

Apart from the bids, the prime contractors may also be planning to file protests if they perceive the newest requirements to favor one company over another, notes Reuters. So what impact will the litigious tanker effort have on the procurement process for big and small defense contracts? Will there be lawsuits and complaints from the companies that lose the bids?

If suppliers perceive that their chances of using litigation to block a procurement awarded to a competitor have increased, they will make more use of this option, notes Morris Cohen, a professor of operations and information management at Wharton. But such challenges are hard to win and costly to execute, Cohen notes. Increasing litigation could slow procurement efforts and raise acquisition costs. In the long run, the government will try to achieve a balance in allowing or discouraging such challenges.

(U.S. Air Force photo by Master Sgt. Lance Cheung) (released))