The Pentagon will re-compete a $35 billion contract to build the Air Force's fleet of new refueling tankers and select the contractor by December, members of Congress said yesterday. Only this time, the Office of the Secretary of Defense — not the Air Force — will oversee the competition between Boeing Co. and a team composed of European Aeronautic Defense and Space Company (EADS) and US-based Northrop Grumman Corp that had previously been awarded the contract.

The decision is a big blow to the ambitions of EADS, the Franco-German aerospace and defense group seeking to get into the lucrative US defense contracting business.  But after much political unrest about a half-foreign company replacing the incumbent contractor Boeing, which had held the contract over the previous fifty years, Congress directed the Government Accountability Office to launch an investigation into the claims of Boeing that the contract had been unfairly granted to EADS-Grumman.

In its report, the GAO stated that the Air Force had made “significant errors” in awarding the contract to EADS-Grumman over Boeing. Out of the 100 contracting concerns brought up by Boeing, the GAO sided with eight of them, giving credence to the beleif that the contract award had not been fair. 

On Wednesday, Mr. Gates, pointing to the GAO's findings, stated that the contract would have to be rebid “because of significant issues pointed out by the GAO”.  You can bet that Northrop Grumman and its team of lawyers will be watching the rebidding process very closely.

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