Northrop-EADS tanker bid was $3 billion cheaper, Pentagon official says

The Pentagon's top weapons buyer said the proposed aerial-refueling tankers from both the Northrop Grumman-EADS team and Boeing were "technically outstanding" but differed by almost $3 billion on price.

John Young, the undersecretary for acquisition, technology and logistics, said at the Pentagon on Wednesday that under the tanker proposal from Northrop Grumman and its partner European Aeronautic Defence & Space (EADS), developing the first 68 aircraft would have cost $12.5 billion, compared with $15.4 billion under Boeing's plan.

It was the first time Young or any top official at the Pentagon has talked in detail about the long-running, $40 billion tanker deal since Defense Secretary Robert Gates said last week that the competition would be punted to the next administration because it had become so politically charged.

Young said Northrop promised earlier delivery and that its aircraft "provided more tanker capability and offload rate and was substantially cheaper to develop."

"Frankly," he said, Boeing's tanker "was smaller and should have been cheaper. ... A member of the American public might conclude that Boeing sought to charge more than the Defense Department reasonably expected" to pay.

Contract awarded

In February, the Pentagon awarded Northrop-EADS the contract. Boeing protested, saying it was treated unfairly, and the Government Accountability Office agreed. The Pentagon started to re-bid the deal, saying it would pick a winner by the end of the year. Boeing argued for more time.

Young said that he put in an independent team to help oversee the tanker competition but that it was "way too late in the process."

He also said he had to consider the coming change in administration: "We would have picked the ingredients, the menu, and fixed the meal, only to serve the meal to the next team — along with the bill — and I'm uncomfortable with that."

Young also said the Air Force was not as clear as it should have been in laying out what it was looking to buy. The Pentagon had 30-some mandatory requirements for the tanker and then about 800 more considered "tradable," Young said.

"We didn't do a good job explaining what prioritization or weighting we would give to those," he said. But, Young said, Boeing exploited that argument in the protest.

Comment declined

A Boeing spokesman wouldn't comment. "We are looking to the future, and we are not interested in discussing the past," Dan Beck said.

Northrop spokesman Randy Belote said, "We look forward to the opportunity to compete again and are confident that we will achieve the same result."

Separately Thursday, Young said that Northrop Grumman-EADS is entitled to a termination fee on the tanker contract in the range of "tens of millions of dollars."

The fee would be for the reimbursement of costs spent by Northrop-EADS to develop its tanker candidate. Young said, "We are certainly going to negotiate with them aggressively and try not pay anything more than we have to, but unfortunately, in my opinion, they are entitled to something."

Also Thursday, Defense Secretary Gates said the Pentagon is not interested in splitting the tanker contract between Boeing and Northrop-EADS, which some have seen as a way out of the tanker mess.

In a letter to the House Armed Services Committee, Gates said it would result in additional expense to the taxpayer and strain the resources of the Pentagon.

He said that if Congress presents legislation proposing a split buy, he recommends a presidential veto.

Information from Bloomberg News and Seattle Times staff is included in this report