This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
The U.S. Air Force found itself in the contracting crossfire between two high-flying rivals vying for a $35 billion aerial refuelling contract. While Boeing lost the initial engagement to Northrop Grumman, it successfully launched a counterstrike against the tendering process, barraging the Air Force with a torrent of allegations regarding procedural improprieties in the RFP evaluation process. In its June 2008 decision in The Boeing Company, the U.S. Government Accountability Office (GAO) sided with Boeing and ordered a retendering.
The GAO made international headlines by sustaining Boeing’s bid protest and recommending the retendering of the controversial, multi-billion-dollar contract. While Boeing’s competitor, Northrop Grumman, was originally selected for the contract award, the GAO’s decision found multiple flaws in the U.S. Air Force’s assessment of the competing proposals and recommended the resubmission and re-evaluation of proposals. The GAO found that the evaluation was “undermined by a number of prejudicial errors that call in question the Air Force’s decision.” According to the GAO, those errors included:
- failing to evaluate technical considerations and costs in accordance with the evaluation weightings and criteria established in the RFP;
- having unfair post-bid discussions that prejudiced the assessment of Boeing’s proposal relative to that of Northrop Grumman;
- accepting Northrop Grumman’s proposal, notwithstanding Northrop’s refusal to meet a key performance term relating to future maintenance services; and
- evaluating some of Boeing’s projected costs unreasonably, by using a “Monte Carlo” assessment tool that was originally developed in the 1950s to predict the outcome of card games.
The GAO noted multiple instances where the Air Force’s evaluation was inconsistent with the rules that were originally established under the RFP. These breaches included (i) the inconsistent application of points to key performance requirements in a manner that improperly favoured Northrop’s proposal; (ii) the improper assessment of how Northrop’s proposed refuelling tanker would perform when measured against current Air Force procedures; and (iii) the improper assessment and scoring of the life-cycle costs for the two competing proposals. Accordingly, the GAO noted that “our review of the record indicates that…the Air Force failed to evaluate proposals in accordance with the RFP evaluation criteria.”
The GAO also found that the Air Force conducted unfair post-bid discussions with the two proponents, which proved prejudicial to Boeing. It noted that Boeing was misled about a key evaluation factor during the discussions:
We do not agree with the Air Force that the agency was permitted, after informing Boeing that its proposal fully met this objective, to change this evaluation conclusion without affording Boeing the opportunity to satisfy this requirement. It is a fundamental precept of negotiated procurements that discussions, when conducted, must be meaningful, equitable, and not misleading.
The GAO also found that the Air Force improperly awarded the contract to Northrop, since Northrop refused to agree to a two-year delivery timeframe for certain maintenance requirements. The Air Force had maintained that this was an “administrative oversight” on the part of Northrop. The GAO disagreed:
We agree with Boeing that Northrop Grumman’s refusal to commit to the required 2-year timeframe within which to provide these depot-level maintenance planning and support services cannot be reasonably viewed as an administrative or documentation oversight.… Although throughout the protest and during the hearing, the agency steadfastly asserted that Northrop Grumman’s failure to so commit was an “oversight” in its post-hearing rebuttal comments, the agency admitted for the first time that Northrop Grumman’s “omission” appeared to be a conscious decision.
The GAO also found flaws in the Air Force’s use of the “Monte Carlo” simulation model, which was relied on to calculate the increased anticipated costs for Boeing’s bid. As the GAO noted:
Although we have recognized that a Monte Carlo model can be a useful evaluation tool…the validity of a Monte Carlo simulation, like all cost estimation models, depends on the quality of the data used.
The Monte Carlo mishap was the final flaw that broke the bank on the evaluation process. The Air Force was ordered to reshuffle the deck, seek new submissions, and re-evaluate the competing proposals. As this case illustrates, even superpowers can be brought down to earth when they fail to follow proper evaluation procedures in their tender competitions.
