Competitions for Pentagon programs have always been cutthroat. But with fewer of them expected in the next decade, each single program is increasingly viewed as a must-win for top Pentagon contractors, driving them to be more creative in their push for a competitive advantage.
So much so that bids don’t only center on a design’s technical prowess, system engineering and program management attributes. More and more, in a quest to get any edge possible, contractors are beefing up their lobbying efforts. And, some are proving better at this than others.
A case in point is how Northrop Grumman, one of the Pentagon’s top contractors, was politically outfoxed by rivals Boeing and Lockheed Martin, who temporarily scored a tax-incentive leg up in the duel to build stealthy, new bombers for the U.S. Air Force.
Owing to Lockheed Martin’s notoriously effective political prowess, the company nearly scored a half-billion in economic incentives from the California legislature, which could have translated to a commensurate discount in its team’s bid for the program, due to the Air Force shortly. Such an advantage could have tipped the scales in favor of the Boeing/Lockheed Martin design on price alone, sending Northrop Grumman into panic mode this summer. As the manufacturer of the stealthy B-2, Northrop Grumman views the bomber program as critical to its future as a top Pentagon airframer.
At issue was California law AB 2389, signed by Gov. Jerry Brown July 10, 2014. Lockheed Martin’s lobbyists quietly and successfully campaigned for the measure for a year. As a result, the law offered $420 million of incentives specifically to a “subcontractor” providing jobs for work on a special access program, clearly referring to the secretive bomber project. Lockheed Martin is the subcontractor to Boeing on the bomber bid. Northrop Grumman is proposing a design as a prime contractor, excluding it from the potential tax advantages offered in the legislative package.
This put Northrop in an embarrassing pickle, as the company was blindsided by legislators from its own back yard. The measure was sponsored in the lower house by Democrat Assemblyman Steve Fox and also Republican state Sen. Steve Knight, both from the Palmdale, area. Palmale is home to the Air Force’s secretive Plant 42, where both Lockheed Martin and Northrop Grumman have operations; Northrop’s have grown substantially in recent years likely to support its work building the Air Force’s secret, stealthy RQ-180 surveillance aircraft.
“We invited all of the players involved. Northrop did not take us up on this,” said one source in the California legislature, adding that Lockheed’s engagement was swift and decisive.
Lockheed had pounced on the idea that Northrop might not build the bomber if it won in California, but Northrop officials say they do intend to build it in Palmdale, a stone’s throw from Lockheed Martin’s famed Skunk Works facility.
Time, however, was of the essence. The Air Force announced that its classified request for proposals (RFP) for the new, stealthy bomber was released July 10. Typically, proposals are due about 90 days from issuance of an RFP, though service spokesman Ed Gulick declined to say when they would be due. This program is shrouded in secrecy and officials have been selectively citing classification in providing scant public details. The service plans to buy 80-100 bombers, each costing less than $550 million to build, making the stakes high for contractors in this duel. But bottom line, Northrop needed quick legislative relief in order to include the same discount in its bomber proposal and meet the RFP deadline.
Northrop, as a result, took a page out of Lockheed’s book and set up camp for weeks lobbying legislators in California for access to the same advantages offered only to Lockheed, as a subcontractor, in a separate bill. At the 11th hour of the legislative session, the governor signed a bill offering the same deal to Northrop.
“Northrop Grumman is pleased the California legislature passed legislation that supports aerospace workers in the state. This is a victory for fairness, the aerospace industry and all Californians,” said Tim Paynter, a company spokesman.
The measure—passed Aug. 14 by the legislature on the eve of its recess—levels the playing field with the tax package by applying the benefits equally to prime and subcontractors and averting what could have been yet another thorny Air Force procurement train wreck. The service has been on the defensive since its clumsy handling of the Combat Search and Rescue replacement helicopter and Boeing KC‑135 replacement programs.
Northrop supporters claimed that applying such large tax credits to one contractor and not another would have been unfair. And though company officials would not say whether they were exploring legal options in the event the tax incentive package wasn’t applied to its own bid, it is highly likely Northrop would have pursued a remedy in court.
Underscoring what a near miss this was for Northrop, top Pentagon officials had a different view of the issue, signaling that Northrop Grumman could have been left out in the cold without legislative help from Sacramento. “The fact that one company receives a tax break from the state in which it is situated is possibly a competitive advantage for that company, but it is not an unfair competitive advantage because it was not given to that company by the Air Force,” says Maureen Schumann, a Pentagon spokeswoman. “It does not have to be equalized. The general rule is that an agency is not required to equalize the competitive advantage a firm might enjoy by virtue of its own particular circumstances so long as the advantage is not the result of preference or unfair action by the agency.”
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