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US: Lockheed, BAE protest Boeing pacts

by Jonathan Karp and Andy PasztorWall Street Journal
October 13th, 2004

Firing the first legal salvos by defense contractors claiming to be victims in a widening Pentagon procurement scandal, Lockheed Martin Corp. and Britain's BAE Systems PLC filed protests asking the Air Force to review tainted contracts won by rival Boeing Co.

The actions yesterday follow the admission by former high-ranking Air Force acquisition official Darleen Druyun that she steered billions of dollars of contracts to Boeing in return for Boeing's hiring members of her family and giving her a $250,000-a-year job. The formal protests, a break from the defense industry's general reluctance to make a public outcry over major contract awards, are bound to increase pressure on Air Force and Pentagon officials to delve into suspect contracts, some of which already are under review. They also could prompt complaints from other companies that lost out to Boeing.

In its protest, Lockheed asked the Air Force to review a $4 billion contract to upgrade cockpit electronics on C-130 cargo planes, an award to build the so-called small-diameter bomb -- a program that Boeing says could generate $2.5 billion in sales -- and two classified projects, which neither Lockheed nor the Air Force identified. The Bethesda, Md., defense contractor said the scope of the review should include contracts "that Ms. Druyun may have been involved in and which Lockheed Martin was a competitor. We have asked the Air Force to look at these contracts to ensure that they were properly awarded."

Tom Jurkowsky, a Lockheed spokesman, said the company asked the Air Force for a specific remedy, but he declined to say whether Lockheed is seeking the cancellation of tainted contracts won by Boeing, financial compensation or a guarantee of future work. He singled out the June 2001 loss to Boeing of the contract to upgrade C-130 planes, which Lockheed itself makes, as justification enough for the protest. "We have to find a remedy for an injustice caused by Ms. Druyun through her chicanery," he said.

BAE filed a protest over the C-130 contract, saying, "Ms. Druyun's admitted bias and quid pro quo actions...clearly corrupted the acquisition process, which we had assumed at the time was being managed with fairness and integrity." It added that it will work with the Air Force "to redress the injury to BAE Systems," though the company didn't specify what action it wants.

When Ms. Druyun was sentenced to nine months' imprisonment earlier this month for violating conflict-of-interest laws, the lead federal prosecutor in the case said in court that her actions "did great harm to the government." He added that the Air Force would have the burden of the "many investigations that will result." In their court filing, prosecutors said Ms. Druyun admitted in picking Boeing over three other rivals to do the C-130 work that "she was influenced by her perceived indebtedness to Boeing."

In response to the protests, Boeing said it "is not aware of having received any special consideration in the award of the C-130 contract, and believes the award was justified on its merits." The company reiterated that it is cooperating fully with the government.

Air Force officials and prosecutors had looked into Ms. Druyun's dealings with Jerry Daniels, a veteran, tough-talking executive who ran Boeing's military-aircraft and missile operations from St. Louis until mid-2002. From at least the fall of 2001 to the time he retired amid a major executive shuffle, Mr. Daniels had extensive dealings over contracts and other issues with Ms. Druyun, according to court filings, internal Boeing e-mails and interviews with government officials familiar with the matter.

Before yesterday's development, Justice Department and Pentagon investigators had examined those contacts, which ranged from negotiating proposed lease prices for aerial-refueling tankers to a discussion about the performance of Ms. Druyun's daughter as a Boeing employee, according to the e-mails and those officials.

Mr. Daniels, who was questioned for months by prosecutors and Pentagon investigators, said, "I've done everything to cooperate with this investigation, and I will continue to cooperate."

The relationship between Ms. Druyun and Mr. Daniels was so close that from the beginning, they jointly developed a strategy to persuade Congress to approve leasing modified Boeing 767 airliners as tankers, according to internal Boeing e-mails. After both of them moved on to other jobs, Boeing executives complained in an internal e-mail that the company had less access to the Air Force. "In the past, we would have had an audience with Darleen and Jerry" to work out the proposed tanker deal, according to a December 2002 e-mail. "We are less nimble now," the e-mail concluded. Congress officially scrapped the tanker-lease proposal last week.

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