The California legislature has passed a last-minute measure to equally offer a tax incentive package to both contracting teams vying for the next-generation U.S. Air Force bomber program, overturning an earlier law that gave a $420 million discount to the / team alone.
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 details publicly. 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.
Whenrealized Lockheed Martin’s lobbying arm had caught it flatfooted in securing tax credits for a bomber win, the company swung into panic mode. Had the legislature not passed a measure equally offering the tax credits to both teams, Northrop would have been at a near half-billion-dollar disadvantage in the bidding, possibly sounding a death knell for its hopes to continue its B-2 legacy with a new bomber project.
Lockheed Martin’s lobbyists quietly and successfully campaigned for California law AB 2389, offering a series of tax credits applicable only to a "subcontractor" providing jobs in the state for 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.
The measure, passed Aug. 14 by the legislature, 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 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 say applying such large tax credits to one contractor and not another—both companies have production operations in Palmdale, California—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 the company could have pursued a remedy in court. Onlookers consider the bomber program a must-win for the company.
The Pentagon, however, 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."