Northrop’s $80 billion bomber win spelled out in U.S. ruling

By Tony Capaccio and Julie Johnsson

Bloomberg

Northrop Grumman Corp.’s winning bid to develop and build the U.S. Air Force’s new $80 billion bomber held “significant structural advantages” over the competing proposal by Boeing and Lockheed Martin, according to the Government Accountability Office.

The “significantly lower proposed prices” for initial production “created a near-insurmountable obstacle” to Boeing “demonstrating prejudice” in the Air Force’s calculation of realistic costs, the watchdog agency said in a declassified version made public Tuesday of a February ruling that upheld the award and rejected a challenge from Boeing.

Northrop, shut out of prime contracts for U.S. warplanes since the B-2 bomber of the 1980s, was chosen by the Air Force last year to build the new B-21. Due to be deployed in the mid-2020s, it will join Northrop’s B-2 in the Air Force fleet as the successor to the 37-year-old B-1B and the Eisenhower-era B-52. The Air Force wants a durable, stealthy aircraft that can fly deep into enemy territory and launch cruise missiles from safe distances.

Boeing went to the GAO, which hears appeals to competitive bids for Pentagon contracts, with an argument that Northrop low-balled its bid and that the Air Force failed to consider the risks posed when it chose the Falls Church, Virginia-based company over the joint bid from the two largest U.S. defense contractors.

“Our review of Boeing’s allegations and the evaluation record in this case provides no basis on which to sustain the protest” that Boeing filed, GAO General Counsel Susan Poling said in the heavily redacted 52-page ruling.

The agency didn’t accept Boeing’s claim “that the Air Force failed to reasonably account for Northrop’s technical risk” in its analysis of costs, she said, and it “cannot conclude that the Air Force’s realism analysis of Boeing’s proposal was flawed.” Instead, the service “conducted a reasonable” evaluation of costs “that sufficiently incorporated consideration of each” company’s “unique approach,” she said.

The GAO initially kept its findings under wraps based on Air Force secrecy claims. That reflected the largely classified nature of the Air Force’s plan to produce the military’s first new bomber since the Cold War and one of the biggest U.S. weapons systems of the next decade.

Declassifying the GAO’s decision is a step toward improving transparency and public understanding of how the Air Force made its selection. The service has refused to disclose the value of Northrop’s contract, including how much money had been set aside for bonus fees, saying even that could tip off potential adversaries to the new bomber’s capabilities.

Sen. John McCain, chairman of the Senate Armed Services Committee, was among those seeking public disclosure of the Northrop contract’s price. The Arizona Republican noted earlier this year that much of the underlying cost information was public, including the $556 million per-plane price.

GAO spokesman Chuck Young said the Air Force conducted a security classification review and provided the publicly releasable version of the decision, with sections blacked out, to the agency on Monday. “In this case the Air Force controls decisions about how much material can be made public,” Young said in an email.

The GAO ruling “confirms that the Air Force followed a deliberate, disciplined, and impartial process to determine the best value for the warfighter and the taxpayer,” Capt. Michael Hertzog, a spokesman for the service, said in an email.

The GAO took issue with Boeing’s claim that the Air Force unreasonably rejected its proposed materials costs, which the company said were “well substantiated and based on fixed-price vendor quotations.”

“The record does not support Boeing’s allegations,” Poling wrote. “Rather, the record shows that the majority of Boeing’s materials quotations were not fixed-price or otherwise lacked adequate support.” She said Boeing’s quotations were “at best, rough order-of-magnitude estimates” with qualifying language attached.

The agency also rejected as unsubstantiated “Boeing’s assertions concerning alleged high risks inherent in Northrop’s approach.”