A sole source air tanker award, how it developed

A sole source air tanker award, how it developed

11 March 2014

published by http://fireaviation.com

USA — Today, March 11, the Government Accountability Office will hold a hearing at their office in Washington, DC to consider the protests filed by three air tanker companies over the propriety of the U.S. Forest Service’s (USFS) noncompetitive contract award to Neptune Aviation Services, Inc., for next-generation large airtankers. The hearing was scheduled to begin at 9 a.m. ET, but was a closed session, open only to GAO personnel, attorneys for the three companies that protested the contract, and two individuals from the Department of Agriculture who have been asked to be available to testify, Lisa Wilusz, a Senior Procurement Executive, and Gregory Parham, the Chief Acquisition Officer. Even the owners of the protesting companies are prohibited from attending, to prevent them from being exposed to their competitors’ trade secrets.

Protesting the sole source award for two BAe-146 air tankers to Neptune, are Coulson Aviation (USA), Inc; 10 Tanker Air Carrier, LLC; and Minden Air Corp. If only the basic two air tankers are signed up, the value of the contract would be about $141 million. If the options for the five additional tankers are utilized, it would be hundreds of millions.

The GAO is required to make their decision about the propriety of the sole source award by March 28.

Fire Aviation has reviewed almost three dozen documents filed by the protesting companies as well as the USFS’ Motion to Dismiss the protests. The files contain letters of protests, supplementary protests, transcripts of Congressional hearings, “declarations” written by some of the principles, an NTSB report, and an article from FireAviation.com. While it remains to be seen which side the GAO will favor, regardless of the outcome it is clear that after the dust settles the attorneys will probably close shop for two weeks and take their families to Bora Bora.

Most of the documents have redactions, some more than others. One or two are virtually useless as a result, but most still contain a great deal of information. We will elaborate on them, but first, get a cup of coffee–it’s a long story.

The background of the next -generation air tanker contract

On May 6, 2013 the U.S. Forest Service announced their intention to award contracts for five companies to supply seven next-gen air tankers that can fly faster than “legacy air tankers”, have turbine engines, and can carry at least 3,000 gallons of fire retardant, almost 50 percent more retardant than the Korean War vintage P2V aircraft that make up the bulk of the legacy air tanker fleet. Neptune was not selected, and the company filed a protest with the Government Accountability Office. The reasons Neptune was left out of that contract, according to information Fire Aviation has received, may have been their problems providing consistent retardant drop patterns with their new BAe-146 tank, and, their crash history. One of the protesters pointed out “FAA data showing three accidents with eight fatalities between September 2008 and June 2012″. This year Neptune has been working to improve the tanks and said that in 2014 their BAe-146s will all have modified versions (revision number three) of the BAe tank system.

The protest halted the awarding of the contracts and put the process in limbo until May 30, 2013 when actual signed contracts were finally issued to three companies for three air tankers, which the contracting officers felt were not affected by the protest:

10 Tanker Air Carrier for one of their two DC-10s
Minden Air Corp for a BAe-146
Coulson Aircrane (USA) for a C-130Q

Then suddenly on June 7 Neptune withdrew their protest which allowed the contracts for the remaining four aircraft to be awarded to:

Aero Air, for two MD87s
Aero Flite, for two Avro RJ85s

The final next-gen contracts were signed 555 days after the USFS issued the first solicitation for the next-gen aircraft.

Only two of those seven air tankers have been constructed, passed the certification requirements of the FAA and the Interagency AirTanker Board, and have dropped on actual fires — the DC-10 and the C-130Q. The other five missed their contractual start dates and in September the USFS issued “cure notices” to the three companies. The USFS contracting officer established new mandatory availability period (MAP) dates of March 30, 2014 (Minden), May 3 and 7, 2014 (Aero Air), and May 20 and 28, 2014 (Aero Flite).

When Neptune suddenly dropped their protest of the next-gen contract in June neither the company nor the USFS would disclose the reason. There was speculation Neptune felt confident there would be a development later in their favor. It happened on December 12, 2013, when the U.S. Forest Service awarded a sole source contract to Neptune Aviation to supply two next-generation air tankers for the next four to nine years beginning in 2014.

The protest filed by the three other air tanker companies automatically halted the activation of the sole source contract.

What happened between the next-gen award and the sole source award

On April 15, 2013, a month before the next-gen contracts were announced, Neptune contacted the USFS and requested an advance payment on their existing legacy air tanker contract, adding that they would put up two of their aircraft hangars as collateral. Neptune received the legacy contract on March 27, 2013 to provide seven P2Vs (Korean War vintage aircraft) and two BAe-146 jet-powered air tankers. Neptune said they needed the money because they were under “current financial stress” and had “exhausted all efforts to obtain private financing from financial institutions and individual investors.”

Neptune’s CEO, Ronald Hooper, who until December 2010 worked for the Forest Service as Acquisition Management (AQM) Director in the Washington Office, met with the USFS contracting officer and later Tom Harbour, the USFS Director of Fire and Aviation Management to lobby for the advance payment and a next-gen contract.

From an affidavit by Mr. Harbor:

When Neptune did not receive a NextGen contract, Neptune’s CEO, Ronald Hooper, informed [Tom Harbour] that although Neptune would do everything it could to honor its existing Legacy contracts, if it did not receive a contract for NextGen airtankers, for which it had been acquiring and modifying aircraft for several years, it would wind down entirely its airtanker operations. Mr. Hooper also told [Tom Harbour] Neptune would protest the awards at GAO, which it did on May 16, 2013.

USFS contracting personnel asked for Mr. Harbor’s opinion about giving Neptune the advance. He responded on April 22, according to information from the USFS, saying in an email he supported it for the following reason:

[F]or me, the reasoning is simple. Neptune, to this point, is a proven provider of LATs [Large Air Tankers]. I am heading into what looks to be a challenging fire season. We certainly need to go into this with our eyes wide open . . . but bottom line I am willing to take what looks to be a reasonable risk. It sounds to me like if we do not allow the advance, Neptune goes under, and the supply of LATs I currently have is kaput.

Mr. Harbour said in his affidavit,

The fact that Mr. Hooper previously had worked for the Forest Service as Acquisition Management (AQM) Director had no bearing whatsoever on my desire to ensure Neptune received a contract.

The USDA’s senior procurement executive was concerned about the propriety of awarding a sole source contract to a company whose CEO, Ron Hooper, was the former Forest Service AQM Director. However on July 17, 2013, Jack Fisher, Acting Branch Chief for the OE Forestry Ethics Branch, concluded that Mr. Hooper had not violated any ethics laws.

Contracting personnel, after deciding they needed to conduct an audit of Neptune’s finances in order to justify the advance payment, arranged for the Department of Agriculture’s Rural Utilities Service (RUS) to provide a business analysis of Neptune’s continued viability.

On June 3, 2013, RUS Broadband Division Deputy Director Laurel Leverrier provided her opinion that Neptune would be unable to earn a positive net income over a five-year period if it were not awarded a contract for two NextGen airtankers with a five year base period and five one-year options.

On June 6, 2013, the Forest Service entered into a settlement agreement with Neptune (for two air tankers, with options for five more), under which Neptune agreed to withdraw its bid protest and a related Freedom of Information Act request. At that point it was just an agreement, not a contract.

The size of that agreement, at a minimum of $141 million, exceeded the contracting officer’s authority of $62.5 million, and the approval was elevated to the USDA’s senior procurement executive (SPE), Lisa Wilusz. She decided to hire an accounting firm to determine the financial stability of Neptune. FI Consulting reached the following conclusion on August 2, 2013:

We estimate that Neptune will have the financial capacity to operate and continue performing on its in-place [Legacy] contract with the US Forest Service through, at minimum, calendar year 2016, without any further contract awards from USDA.

The reasons for the different opinions of the accounting organizations is that the Department of Agriculture’s Rural Utilities Service was provided incorrect information and based their analysis on specifications from an old contract. The provisions of the new next-gen contract, which they should have been considering, were changed from a wet rate, where the contractor paid for fuel, to a dry rate where the government paid for the fuel. And, some of the annual step increases in pricing had not been considered.

The Director of AQM noted that “…the data Neptune provided us when we did our financial analysis; it was faulty.”

In spite of the accounting firm’s conclusions, in September USFS officials continued to discuss in emails their assumption that Neptune was in danger of closing its doors in the near future and all of their air tankers would disappear, reducing the fleet size by about 80 percent.

On September 23, Mr. Hooper told Mr. Harbour in an email that he would be talking with Senator Tester’s staff, and the company “will sue the USFS by the end of the week if we don’t see some positive movement” toward implementing the agreement.

In mid-October, one of the USFS officials wrote in an email:

Potential News Story (ex; toner cartridges) – USDA makes huge sole source contract award to former USDA employee, contractor has a history of getting large contract awards from USDA despite having 4 fatal accidents, company recently lost Next Gen competition but given a virtually identical award non-competitively, settlement agreement based on inaccurate financial data, eccentric owner, company claims financial hardship…

The “toner cartridge” incident the official may have been referring to probably was the unwanted publicity that occurred a few weeks earlier just before the fiscal year ended September 30, when the USDA reportedly spent $144,000 in one day on printer ink. In most cases if federal agencies still have unspent funds at the end of the fiscal year they lose it, so occasionally spending sprees occur in September.

At least a couple of contract offers were made to Neptune which were rejected, and the company said in an email they would:

…file our suit in District Court c.o.b Wednesday [Nov.] 27th [2013] and to grant an interview with L.A. Times and AP Wednesday afternoon. Is there anything you can tell me to avoid this train wreck?

A similar message was also sent on December 3, 2013.

Finally, the Justification and Approval document for the sole source contract was issued on December 9, 2013, the same day that Neptune received approval for its Revision 3 retardant delivery system which is being installed in all of their BAe-146 air tankers. The new contract was announced on December 12.

The Forest Service argued that the protests should be dismissed

The USFS in their motion to dismiss the contract protest, put forth a number of arguments. The agency still quoted the first accounting analysis by the Department of Agriculture’s Rural Utilities Service which concluded that Neptune was in danger of going out of business and would need a shot in the arm, that is, another contract, to continue to supply 80 percent of the air tanker fleet. They did not mention the second analysis by FI Consulting which reached the opposite conclusion after considering more accurate information.

The USFS also pointed out that of the seven line items that received next-gen awards, only two of the aircraft became fully certified during fire season, and one of them missed the target mandatory availability period which was 90 days after the award. The agency expressed great concern that additional next-gen air tankers could be made available in the near future, other than Neptune which they said has been a very reliable supplier.

Another USFS argument was that on December 9 the day the sole source contract was awarded, three companies who originally protested the award, Aero Air (who later dropped out of the protest), Minden, and Coulson did not have an air tanker ready to drop on fires, therefore they have no standing in the protest. The companies point out that on May 6, 2013, the day the next-gen awards were announced, only one of the seven line items had an aircraft ready to fly, which was acceptable in the specifications of the contract. They were supposed to be ready 90 days later.

The USFS said the protesters’ allegations that the Neptune contract has the appearance of impropriety are not borne out by the facts, and that the USFS did not act improperly by promising Neptune a sole source contract in exchange for the withdrawal of its bid protest.

The three protesting companies argued the sole source contract should be terminated

Hundreds of pages were submitted to the GAO, listing dozens of reasons why the sole source contract should be terminated.

The Coulson company argued that on several occasions they told the USFS that they could supply more than the one C-130, but were told that the funding situation was too uncertain to commit more air tankers. Then a few months later, the USFS issued a contract potentially worth at least $141 million.

10 Tanker made similar offers, and in fact had a second DC-10 fully certified and on a call when needed contract that they would have liked to convert to an exclusive use next-gen contract. They also said they are working on retrofitting a third DC-10 which they expect to have ready to go by the end of calendar year 2014.

In one of the protest documents there were several references to a report issued by the air tanker Technical Evaluation Board (TEB) which reviewed the proposals submitted by the air tanker companies when they applied for the next-gen contract. All of the actual quotes from the document were redacted, but it is clear from references to them that the TEB had negative comments about the safety record of Neptune.

Long range planning was brought up by one of the companies, which mentioned that the USFS felt pressure to issue a sole source award due in part to their lack of planning for an air tanker fleet over the last 15 years. The fleet declined from 43 in 2000 to 11 in 2011. Studies in 1996 and 2007 reflected the need to increase the number of air tankers. There was a “generous time-frame available for procurement planning” one company said. And, “the agency’s own lack of advance planning is the cause for the current sole source award and provides a strong basis for sustaining the protest.”


A Neptune BAe-146 drops on the Devore Fire, November 5, 2012. Photo by Rick McCLure.

10 Tanker’s Air Tanker 910, a DC-10, at Rapid City, April 23, 2013. Photo by Bill Gabbert.

Coulson’s Tanker 131, a C-130Q. Photo by Dan Megna.


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