The third bidder for the KC-X tanker contract, U.S. Aerospace (USAE) and its Ukrainian partner Antonov, had their protest denied yesterday by the Government Accountability Office (GAO).

The company had filed the protest because the Air Force had said their proposal was delivered past the deadline for submission. U.S. Aerospace claimed that their courier was deliberately delayed and should have been allowed to make the delivery on time.

This decision leaves only the Boeing (BA) and EADS (EADS:P) bids as being considered for the contract. The Air Force had previously said that a decision would be announced around the middle of November but there have been reports that this might slip.

It is being reported by various sources that EADS is pressuring Northrop Grumman to go ahead and submit a bid for the new KC-X RFP. Northrop had informed the Government that they planned not to if the terms were not significantly changed. They felt the RFP was favoring Boeing’s cheaper, smaller KC-767 aircraft.

The final RFP came out two weeks ago and still no word from Northrop that they will go ahead and submit something in May. EADS obviously would like another chance to win the contest after they lost the last one to Boeing’s protest in 2008. The $35 billion would go a long way to make up for the lost A400M revenue.

The Air Force and Department of Defense acquisition officials briefed Congress and the press today on the new RFP for the KC-X. It had some slight changes from the draft release a few months ago. The key question is will Northrop bid this time around?

They won the last contract to have that thrown out on Boeing’s protest. Much more to come on this in the days ahead.

Yesterday Northrop announced that it is considering not participating in thew new KC-X competition. They are concerned that the the way the price requirement is structured may not be fair to them. They are also pursuing the complaint that their cost data was provided to Boeing during the protest of the last award and want access to the same information.

If Northrop and EADS don’t submit a bid it will be hard to get actual competition on the contract. That would leave just one submission, Boeing, or perhaps two from them if they go the route of having a 777 as well as a 767 proposal. This situation would make it hard for the Air Force to proceed.

The chances of Northrop doing this is low and the Department of Defense realizes it. This is the largest procurement coming down the road and both EADS and Boeing need the work. Of course if there is really a belief that their bid cannot win no matter what then Northrop should just save the money and not prepare one. This is only the draft RFP so the next year or so should be interesting.

DefenseNews reported last month on comments by Air Force senior leadership relative to the new tanker contest. The one thing they did not want was a protest of the next award. Obviously this would cause delays to implementing the new contract and even worse cause a fourth attempt at the award.

Unfortunately due to the stakes involved a protest by the loser or losers is almost assured. Hopefully the protest can be resolved quickly and not hold up the program even more then it has been.

The Northrop Grumman and EADS team will build their tanker in Mobile, AL if they win the contract again. Last year when they had done so before the Boeing protest the plant was ready to go. This means that the team has the support of Alabama’s politicians and media. Senator Sessions had tried to get language inserted into a defense funding bill that might have helped Northrop but lost that vote.

Now the Mobile Press-Register has an article where the experts they interviewed question the structure of the new draft RFP and how it may be unfair to Northrop and EADS. It is certainly true that a focus on price over capability might affect the Air Force’s source selection but it may be too early to tell that. Plan on seeing more articles supporting the local favorite in Alabama media.

This article at Bloomberg.com lays out the Air Force’s approach on awarding the contract. They intend to use a best value approach with over 300 minimum requirements and then another ninety or so to give trade space. The initial contract will be Firm Fixed Price (FFP) transferring a great deal of risk to the contractor. The ultimate goal is to have an open competition with no protest.