US: contracting controversy

Tuesday, April 1

The US Air Force on February 29 surprised many observers by awarding one of the largest procurement contracts in history to Northrop Grumman over its favoured rival, Boeing. The 40 billion dollar award is for the development and production of 179 aerial refuelling KC-45 aircraft. Follow-on production orders are likely to replace additional segments of the refuelling fleet, making the overall project worth upwards of 100 billion dollars. However, the contract has aroused considerable political controversy in Washington, since Europe's EADS served as Northrop's junior partner in the joint bid; politics, not military requirements, will now determine the fate of the award.

Two political points have already emerged as central to the controversy:

• Concerns abound about awarding such a significant contract to a European company. Yet while the European consortium EADS originally designed the aircraft itself, Northrop estimates that 60% of its supplier base will come from the United States. For its part, Boeing promises an 80% US supplier base. Yet current acquisition regulations, including provisions of the 1933 Buy America Act, except certain countries and mandate that procurement officials treat many Western European countries as if they were US-based, complicating the arguments of congressional 'America first' advocates.
• Air Force critics have also argued that Northrop's victory represents the outsourcing of critical US defence industries to Europe. However, modern defence industries are increasingly global in scope. The Northrop-EADS victory serves as a harbinger of greater European presence in the US defence sector, but US firms are also very active players in the European aerospace community.  If it chooses to challenge the Air Force's determination, Congress may need to be careful not to spark a European backlash whose consequences would be felt by US firms.