Boeing and Nato thread

Inside the Air Force
May 14, 2004
Pg. 1

Final price may fall below $1.34 billion

Air Force Renegotiating ‘Global Solution’ Contract With Boeing

The Air Force is in the process of renegotiating with Boeing an undefinitized half-billion-dollar production and retrofit deal associated with the mid-term modernization program for NATO’s Airborne Warning and Control System, according to a service official.

The service late last month awarded Boeing a $524 million undefinitized contract for the production and retrofit phase of a NATO AWACS hardware and software improvement program, which began in 1997 with a $551 million engineering, manufacturing and development contract award. The program, managed by the Air Force, was restructured several years ago to account for some performance problems incurred by the company, and the revised production and retrofit effort became known as the Global Solution. Together, the EMD and production and retrofit work was re-valued at $1.34 billion, though as the Air Force determines the validity of the Global Solution price, that value could decrease, according to Charlie Williams, the service’s deputy assistant secretary for contracting. Williams, whose office falls under the Air Force’s acquisition branch, spoke with Inside the Air Force May 12.

The Defense Department Inspector General was recently asked to review the restructured deal to ensure proper business and contracting procedures were followed. Darlene Druyun, former Air Force principal deputy assistant secretary for acquisition and management, conducted the Global Solution negotiations and was also NATO AWACS management organization board of directors chair before leaving the service to work for Boeing. She is also under fire for her past involvement in the service’s efforts to lease 100 Boeing KC-767 tankers.

In its audit released April 19, the IG found the Global Solution deal was negotiated without any knowledge as to whether the cost was “fair and reasonable.” The IG also criticized the senior-level managers involved in the deal, Druyun being among them, who failed to follow Federal Acquisition Regulation business and contracting procedures, according to the report.

The IG raised numerous questions in regards to the deal, and recommended that the service “ensure that options (production and retrofit) included as part of the contract modification are not approved until thorough analyses of Boeing technical and cost proposals are completed.” In addition, Global Solution contract line items should not be awarded “until the final negotiated price is determined to be fair and reasonable,” the IG said.

While the IG report was critical of the workings of the Global Solution deal and strongly cautioned against awarding specific production and retrofit lines, last month’s contract action, because it was “undefinitized,” did not explicitly go against the audit’s recommendations, Williams explained.

The service had to go ahead with awarding the recent $524 million contract because a break in program activity to review the price of the deal would bring “fairly significant” cost and schedule problems for the allied nations involved, he said. Awarding the contract as an undefinitized one “gives us the flexibility of taking a new proposal from Boeing and negotiating that proposal to ensure that we have a fair and reasonable price as a result of that,” he said. “We haven’t settled on a price.”

Following last month’s undefinitized contract award, the Air Force and Boeing entered into a roughly 180-day period of renegotiating the Global Solution. The $524 million value is considered a “price ceiling” for the deal, according to Williams. Toward the end of the month, Boeing will issue a new proposal that will pave the way for a series of Air Force audits and reviews of the proposal and its associated costs. There will not be any changes made to the statement of work nor to the schedule for the improvement program.

“We will not go back and change the statement of work or the technical parameters associated with that statement of work,” Williams said. “But we are going to negotiate a price for the production and retrofit” work.

–Elizabeth Rees

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