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29 Apr 05. The Wall Street Journal reports today that the U.S.A.F. will hold a new competition for $3.3bn of cockpit upgrades on C-130 cargo planes, setting up what could become the biggest contract reversal for Boeing Co. in the wake of a Pentagon procurement scandal.

The decision upholds the recommendation by the Government Accountability Office, Congress’s investigative arm, to reopen the bulk of a tainted contract awarded to Boeing in 2001. The cargo-plane upgrade was one of a number of contracts that former Air Force official Darleen Druyun admitted steering to Boeing out of gratitude for hiring two relatives and eventually herself. Ms. Druyun is serving a nine-month prison term for holding illegal job talks with Boeing.

Both the GAO and the Air Force concluded that it would be impractical to redo the competition for the entire contract. Boeing is designing and testing cockpit upgrade kits for the C-130 under a development contract valued at about $1bn through 2010. The competition for producing and installing these kits in the cargo planes, estimated at $3.3bn, will be held around then, when design and testing of the cockpit electronics is completed, the Air Force said.

Under the original contract, Boeing would have received the production and installation work if it performed well in the development phase, Air Force spokesman Doug Karas said. In the wake of Ms. Druyun’s admission in court last year that she gave Boeing preferential treatment in awarding the contract, losing bidders Lockheed Martin Corp., BAE Systems PLC and L-3 Communications Holdings Inc. protested the award. The GAO upheld the protest in February. Lockheed, which makes the C-130 plane, and the two other companies said they welcomed the Air Force’s decision to hold a new competition and said they will evaluate whether to bid again when the Air Force sets the terms of the new contract. Boeing is expected to compete and could win the contract again. Boeing spokesman Paul Guse said the company will “continue to focus on the successful execution of this important program, building on the extensive development work we have completed to date and the strong performance ratings we have received from the Air Force.”

The Air Force’s move on the C-130 follows its decision last week on another tainted Boeing contract in which Ms. Druyun played a role and which Lockheed subsequently protested. The Air Force said it would open the second phase of the Small Diameter Bomb contract to competition. Last week, the Air Force awarded Boeing an $18.5m contract for initial production of the latest version of the Small Diameter Bomb.

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