U.S. agency rejects Boeing protest of Northrop bomber contract

By Andrea Shalal
The Boeing logo is seen at their headquarters in Chicago, April 24, 2013. REUTERS/Jim Young

By Andrea Shalal

WASHINGTON (Reuters) - A U.S. government agency on Tuesday rejected a protest filed by Boeing Co <BA.N> and Lockheed Martin Corp <LMT.N> against a multibillion-dollar bomber contract awarded to Northrop Grumman Corp <NOC.N> by the U.S. Air Force in October.

The decision by the U.S. Government Accountability Office marked another setback for Boeing, which is facing job cuts in its commercial division and a reported federal investigation into whether it properly accounted for two jetliners, the 747 and 787.

Ralph White, GAO's managing associate general counsel for procurement law, said the GAO found no basis to sustain or uphold the protest against the Northrop contract, which analysts value at over $80 billion.

The U.S. Air Force's technical evaluation of the rival bids and their cost was "reasonable, consistent with the terms of the solicitation, and in accordance with procurement laws and regulations," White said.Boeing said it would carefully review the GAO's decision and decide on next steps in the coming days. Boeing can still challenge the Northrop contract in federal court.

"We continue to believe that our offering represents the best solution for the Air Force and the nation, and that the government’s selection process was fundamentally and irreparably flawed," the company said in a statement.

Air Force Secretary Deborah James welcomed the decision and said the Air Force looked forward to proceeding with what she called a critical weapon system to face evolving threats to U.S. security.

Northrop said it looked forward to resuming work on the new warplanes, which will replace the aging fleet of B-1 and B-52 bombers. The contract win reestablished Northrop as one of the Pentagon's big prime contractors for U.S. warplanes.

The company builds large portions of the Boeing F/A-18E/F and the Lockheed F-35 fighter, but serves as a subcontractor.

Boeing had challenged the initial $21.4 billion contract awarded to Northrop, which includes engineering and design work, and options for production of the first 21 planes. It argued that the Air Force’s evaluation of the costs and technical aspects of Northrop's bid was fundamentally flawed.

The Air Force has not released the full value of the contract, which foresees production of a total of 100 new bombers, or the cost of first 21 planes. It has said it expects to pay $511 million per plane in 2010 dollars.

GAO said the details of its decision and Boeing’s challenges were classified and covered by the terms of a protective order.

(Reporting by Andrea Shalal; editing by Tom Brown)