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Boeing (BA) has some of the brightest minds in the world. As the world’s leading aerospace company (search), their employees are engineers and rocket scientists who hold over 26,000 advanced degrees and have developed more than 6,000 patents. These were the kids whose homework problems everyone copied in high school and who later tutored us in college. So why does Boeing face allegations of resorting to cheating to win government defense contracts?
Boeing has a history of gathering illegally-obtained information that gives them an unfair advantage in their bidding for Pentagon contracts (search). In the 1980s, the Justice Department discovered that Boeing put together a number of concealed libraries containing secret documents that were acquired unlawfully. This prompted Congress to pass the Procurement Integrity Act, which forbids contractors from holding rival company or government proposal information prior to awarding of the contract.
Nevertheless, it seems that Boeing’s rocket scientists couldn’t seem to keep their eyes on their own work. In 1998, Boeing was forced to withdraw from the Air Force’s EKV Missile Defense System bidding because the company unethically obtained and examined rival Raytheon’s design documents. This led to Raytheon being awarded the contract by default, rather than on the technical merits of its proposal.
In spite of Boeing's well-documented history of unethical behavior, the government continues to award the company lead contractor roles instead of “debarring” Boeing from competing in certain defense contracts for some period of time. As recently as 1999, a group led by Boeing surprisingly won a $5 billion Air Force spy satellite contract over industry-leader Lockheed Martin. Was it the expertise of Boeing’s rocket scientists that led to the win? Or did they rely on the more than one dozen boxes of Lockheed’s proprietary design and cost documents which were later discovered to be in Boeing’s possession?
This poor corporate governance severely handicaps the American military, who lose out as much when Boeing arguably submits the better bid but has to pull out of a proposal as when the company unjustly gets lead contract awards by peeking at their rival’s work. Moreover, it raises serious questions about the appropriateness of Boeing recently being awarded the lead role in a $15 billion contract for the Pentagon’s Future Combat System, a monumental project intended to modernize the U.S. Army. Adding fuel to the fire, Boeing has also received a $16 billion contract to provide the US Air Force with 100 flying fuel tankers.
Can Boeing now be trusted to oversee $31 billion of taxpayer money and to spearhead the Pentagon's initiative to create a 21st Century military? Left unchecked, Boeing’s pattern of inadequate controls and inferior governance will surely lead to scandals of increasing magnitude. And it really doesn’t take a rocket scientist to realize that in the long run, anticompetitive behavior and bad corporate governance only punishes America.
Hilary Kramer serves as a business news contributor at FOX News Channel. She joined the network as a regular guest on Cashin' In in May 2001.