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WASHINGTON D.C. – Boeing Co. and Northrop Grumman Corp. will submit new offers for a disputed $35 billion Air Force tanker contract, and the Pentagon will pick a winner by the end of the year.

Defense Secretary Robert Gates said Wednesday that his office -- not the Air Force -- will oversee the competition between Boeing and the team of Northrop and Airbus parent European Aeronautic Defence and Space Co.

The plan, which hands control to the Pentagon acquisition chief, John Young, and sets up a dedicated source-selection committee, shows that senior civilians at the Defense Department have lost confidence in the Air Force's ability to manage the contract.

"I've concluded that the contract cannot be awarded at present because of significant issues pointed out by the Government Accountability Office," said Secretary of Defense Robert Gates.

The announcement comes after major backlash from lawmakers and a scathing review by the GAO that found major flaws in the decision to award the lucrative contract to Northrop Grumman and its European partner over Boeing Co. Last month, a GAO report said Boeing might have won the contract if the Air Force had not made mistakes in evaluating the competing bids. The GAO recommended the service hold a new competition.

Lawmakers from Washington state and Kansas, where Boeing employs thousands of workers, have put considerable pressure on the Air Force to reopen the bidding process and cancel the contract with the Northrop team.

"It is gratifying to see the secretary of defense recognize that the GAO findings need to be respected and need to be honored if the process is going to have credibility and those GAO findings were simply common sense," said Rep. Jay Inslee, D-Wash.

"One of the things they did not properly evaluate was the cost of fuel over the life cycle," said Dicks. "I have an estimate of the difference in consumption of the Airbus plane - which I call the 'SUV' in the sky - and the Boeing 'hybrid.' They burn - over 40 years at 750 hours a year, 179 planes - $35 billion more in fuel, which is enough money to buy another 179 airplanes at today's prices."

Sen. Maria Cantwell, D-Wash. is vowing to play hardball with the new bid.

"Congress must play a strong oversight role and I have urged the Senate Armed Services Committee to quickly hold a closed hearing to make sure the Department of Defense and Congress are fully aware of the national security issues involved. If they do not address these concerns, it's a non-starter and I will place a hold on the nominations of the Secretary of the Air Force and ask that this information be declassified for public debate," said Cantwell in a statement.

"Because no one has any faith in the Air Force. They're going to hold up their nominations. People are mad about this," said Dicks.

Gov. Christine Gregoire said the Pentagon should have gone one step further on Wednesday.

"I'm pleased that they're going to rebid but I have to say that if they're going to reuse the exact same criteria as what they did in the first place I really think they could have and should have awarded the contract to Boeing today because it's obvious that Airbus does not meet the criteria and the Boeing plane does," said Gregoire.

Boeing machinists union president Tom Wroblewski echoed the statement.

KING

Defense Secretary Robert Gates spoke to reporters during a Tuesday visit to Fort Lewis.

"I'm happy. I'd only be happier if they'd just go ahead and award it to the Boeing Company, but that's not going to happen. I'm glad to hear they're going to speed up this bidding process," said Wroblewski. "To hear they'll have the decision by December, I think that's a nice Christmas present for the Boeing Company and the machinist union members."

The contract award in February has emerged as the latest black eye for the service, which is trying to rebuild a tattered reputation after a procurement scandal in 2003 sent a top Air Force acquisition official to prison for conflict of interest and led to the collapse of an earlier tanker contract with Boeing.

One of the big issues that stunned lawmakers about the February decision is allegations that EADS is receiving government subsidies, severely tilting the playing field. The European Union has made similar allegations in the past about Boeing.

"This issue of subsidy is one that Congress needs to address," said Inslee. "The fact of the matter is that one agency of the U.S. government ... has brought a claim in court having found that Airbus violated the rules. It's just inconceivable to me how we're not taking that into consideration in this bidding process."

Sen. Patty Murray, D-Wash. has previously pointed out the Airbus and Northrup Grumman plane, due to its size, wouldn't be able to land at several hundred air bases around the globe, which limits its capability.

"In this case bigger is not better. And the Air Force said it wanted a medium sized tanker, and they went for this great big jumbo that is going to cost them more money to own and they're going to have fewer fields to operate in. It's still one of the worst decisions I've ever seen, and it was done very unfairly with bias against Boeing," said Dicks.

Murray introduced a Senate Resolution Tuesday calling on the Pentagon to rebid the flawed tanker contract. The resolution was co-sponsored by Sens. Pat Roberts, R-Kan., Kit Bond, R-Mo. and Claire McCaskill, D-Mo.