Hughes Asks U.S. to Revoke IBM Contract : Claims FAA Granted Rival Bidder Unfair Edge in $3.6-Billion Pact
Hughes Aircraft asked the government Thursday to revoke a $3.6-billion contract awarded to International Business Machines last week for a new national air traffic control system, alleging that the Federal Aviation Administration granted IBM unfair advantages in the competition for the program.
IBM won the contract for the Advanced Automation System, the largest award in its history, after the firm submitted a bid that was approximately $500 million lower than Hughes’, according to knowledgeable sources.
But in a formal protest filed late Thursday, Los Angeles-based Hughes claimed that the award “violates federal procurement law” and cited a series of alleged irregularities that drove up Hughes’ costs by hundreds of millions of dollars.
The AAS is a major overhaul of the nation’s air traffic control equipment, including new computers, radar displays and software for 23 area control centers across the nation and as many as 250 airport control towers. The system, which will be completed by the turn of the century, is intended to improve air safety and reduce air controllers’ workloads by replacing obsolete equipment.
Hughes claimed that the FAA allowed IBM to offer used computers for the AAS at the same time Hughes was required to use new computers. The protest also said IBM, as a supplier of computer hardware to Hughes, allegedly inflated its subcontract prices to Hughes by millions of dollars over the prices that it quoted directly to the FAA for the same equipment.
“IBM was permitted to bid on different ground rules, which resulted in its ability to bid a significantly lower price. And their offer does not meet the stated AAS mandatory requirements,” Hughes Vice President Lee Pitt said.
IBM spokesman Jim Elder responded that his company is “surprised and disappointed by the Hughes protest because we believe the competition was run fairly.” Elder declined to comment further until IBM had a chance to evaluate the protest.
FAA spokesman Fred Ferrar refused to comment on the Hughes complaint, saying agency officials “haven’t seen it yet.”
The protest was filed before the Board of Contract Appeals, an agency of the General Services Administration. Hughes’ law firm, Latham & Watkins, requested a suspension hearing in Washington today. A final decision is expected by early October.
Pitt said he could not speculate on what the board will find, but relatively few major federal contract awards are overturned. Nonetheless, American Telephone & Telegraph won a protest earlier this year on a contract award that it lost for a government telephone system.
Quality Stressed
The Hughes bid for the AAS was roughly 14% more costly than IBM’s, but Hughes’ protest attributes most of the difference in price to a series of disputed items.
Under the FAA ground rules, technical superiority was supposed to be judged more important than cost. Hughes claims that its system was superior to IBM’s. At the time the award was announced, FAA officials said both proposals were “excellent.”
The 20-page protest filed by Hughes said the award to IBM violates federal procurement law in four general areas, including an “erroneous trade-off” between Hughes’ technical superiority and IBM’s lower cost; allowing IBM to bid used equipment; improper evaluation of the costs, and failure to reject IBM’s proposal for not meeting technical specifications.
The most significant allegation involves a special provision in IBM’s contract that allowed the firm to offer used computers for the air traffic control system at the same time the FAA told Hughes that it had to supply new equipment, according to the protest.
As a result, Hughes said, its bid for that portion of the system amounted to $309 million, whereas IBM bid only $127 million for that part of the system.
Hardware Cost an Issue
“If Hughes had been allowed to supply used computer equipment under the same terms afforded to IBM, Hughes would have been able to offer a substantially reduced price,” according to the Hughes protest.
Another key issue was IBM’s behavior as a subcontractor to Hughes for computer hardware for the AAS. Hughes said that in the case of one piece of hardware, IBM bid $541,471 to the FAA, but told Hughes that the same equipment would be supplied to it under subcontract for $33.5 million.
On certain spare parts for the system, IBM bid $11 million to the FAA, but told Hughes the spare parts would cost it $223 million, according to the protest.
Hughes claimed that IBM failed to meet five technical requirements laid out by the FAA.
