By Emelie Rutherford

The defense spending bill nearing final passage calls for the Pentagon to consider a dual buy for the aerial refueling tanker contract, a setup the House’s lead defense appropriator predicted is necessary but the Pentagon and lawmakers supporting bidder Boeing [BA] oppose.

The explanatory statement accompanying the continuing resolution (CR)–catch-all legislation including the final compromise fiscal year 2009 defense appropriations bill– laments delays in awarding the KC-X tanker contract, including Secretary Robert Gates’s move this month to halt the two-way competition between Boeing and a Northrop Grumman [NOC]-European Aeronautic Defence and Space Co. (EADS) team.

The House passed the CR Wednesday and the Senate had not voted on it by Defense Daily‘s deadline last night.

“The timing of the Secretary’s notification made it too late for the Congress to undertake a comprehensive review of alternatives and mandate a way forward that would be fair to all parties involved,” the explanatory statement reads. “The Department of Defense needs to address this serious problem as quickly as possible. The Department of Defense should consider any practical option that would enable the replacement of the KC-135s expeditiously to include the possibility of awarding competitive contracts to more than one offeror.”

House Appropriations Defense subcommittee (HAC-D) Chairman John Murtha (D-Pa.) went further in comments to reporters Wednesday, after the House passed the CR.

“What we said was, ‘Look, dual buy,'” Murtha said. “Now, Boeing doesn’t like that and I don’t know if Northrop likes that. The Defense Department definitely doesn’t like it.”

Still, he added: “Let me tell you, we’re not going to have tankers if we don’t do that, I’m convinced….There’ll be a protest, no matter who wins the next competition. So I’m trying to convince both sides, look, put your best plane forward as it is.”

The Pentagon announced Sept. 10 it was canceling the contentious tanker competition and will allow the next presidential administration to reassess and restart it. The Pentagon had been making plans to recompete the contract, after pulling a February contract award to Northrop Grumman following the Government Accountability Office’s sustainment of a Boeing protest.

Murtha said his staff has examined the added cost of having two sets of tankers, and are still working on the numbers.

He said he is “going to work with the Defense Department trying to convince them that, look, we’re not going to have tankers now.” He predicted under a dual-competition setup “Northrop would get the plane first, because they have one that’s ready to go,” and then “Boeing would come in later.”

The dual-buy idea has not sat well with Boeing supporters on Capitol Hill, who praised the cancellation of the most-recent competition they argued was biased in favor of Northrop Grumman.

Boeing backer Sen. Patty Murray (D-Wash.), a member of the Senate Appropriations Defense subcommittee and her chamber’s leadership, did not know about the language in the CR when asked about it by a reporter mid-day yesterday.

“She’s always been adamantly opposed to a split buy and the secretary of defense has said he doesn’t want a split buy,” Murray spokeswoman Alex Glass said. “It’s the wrong move for the taxpayers and the warfighter.”

Aides for Boeing advocates in Congress noted the language in the CR is not an outright call for a dual competition, and that any such proposal would cause a firestorm on Capitol Hill. They question where the money would come from for buying two tankers and then maintaining a mixed fleet.

“The secretary of defense made it abundantly clear that he doesn’t think it’s practical,” said George Behan, spokesman for Boeing backer Rep. Norm Dicks (D-Wash.). Dicks is next in line after Murtha on the HAC-D.

After House Armed Services Committee (HASC) Chairman Ike Skelton (D-Mo.) asked Gates about the idea of splitting the tanker program, the defense secretary replied in a Sept. 18 letter that he would “strongly oppose” such an approach–saying it would cost billions of dollars and strain the Defense Department’s resources. Gates states he would recommend President Bush veto any legislation with a “directed acquisition strategy” calling for dual sourcing.

The tanker battle would not fit the criteria of other competitions where dual-sourcing benefited the Pentagon, Gates says.

“In every successful instance…the product being dual sourced by the Department has been a military unique item and not an item whose predominant make-up is a commercial-off- the-shelf item (Northrop Grumman) or a commercially-derived item (Boeing),” Gates writes. “In general, pricing of both of these aircraft is driven by aggressive commercial pricing competition and annual commercial production requirements that dwarf the DoD production purchases. Thus, DoD is getting significant price benefits from the commercial market and foresees no additional benefits from a dual source, competitive tanker acquisition strategy.”

A second tanker development program–and higher prices for lower procurement rates–would cost the Pentagon an estimated additional $6 billion to $7 billion, with billions more in increased operation and support costs, the defense secretary writes.

He notes other arguments against a dual-sourcing approach, including that “the opportunity for DoD to compete the KC-Y and KC-Z would be severely impacted, if not eliminated.” He adds the department’s experience with procuring DDG-51 destroyers has shown that “limited competitive benefit from strategies providing some guaranteed level of production to two industry sources.”

Asked if Northrop Grumman has lobbied on the Hill recently for the dual-competition idea, as sources have suggested, company spokesman Randy Belote replied: “We were asked by several members of Congress to provide information to help define what a dual procurement would look like.”

Northrop Grumman supports the customer, and won’t try to get out in front of the Pentagon, he said, acknowledging the Defense Department’s cost concerns.

“We recognize that the Defense Department needs tankers, and if there is a way to expedite fulfilling that need, we’ll support the Defense Department in whatever direction it goes in,” Belote said. He added that Northrop Grumman has never been in favor of a “split buy,” or splitting the previous plans for 179 tankers between the two companies, but a “dual procurement” would be more amenable.

Boeing spokesman Dan Beck declined to speculate on how the split-buy idea will play out on the Hill.

Boeing’s “focus remains on meeting the needs of the warfighter as they identify them,” Beck said. “We look forward to a reopening of the competition to identify the right tanker to modernize its fleet of medium-sized tankers. In the meantime, we will continue to work with the Air Force to keep the existing fleet of KC-135s and KC-10s flying safely and reliably.”

The House passed the CR as well as the final House-Senate compromise version of FY ’08 defense authorization bill on Wednesday (Defense Daily, Sept. 25). The Senate had not passed either bill by early yesterday evening.

The defense authorization bill does not address the idea of dual sourcing the tanker. Yet it requires a report from the defense secretary explaining several aspects of the tanker competition, including an examination of the KC-X requirements, and calls for a reassessment of the aerial refueling requirements previously approved by the Joint Requirements Oversight Council.

The authorization bill also calls for the Pentagon to assess the impact any government subsidies had on the tanker competition if the World Trade Organization deems the subsidies illegal.