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Babcock Gets Another Shot at $22.8 Billion Nuclear Award

(Corrects size and scope of Babcock work in third paragraph in story published April 29.)

Babcock & Wilcox Co. (BWC) may get a chance to recover its biggest U.S. government contract after a federal agency said Bechtel Group Inc.’s new 10-year, $22.8 billion agreement was improperly awarded.

The U.S. Government Accountability Office, which arbitrates contract disputes, today sustained protests filed by Charlotte, North Carolina-based Babcock and a group that includes Jacobs Engineering Group Inc. (JEC) and Fluor Inc. (FLR) The GAO recommended reopening the competition.

The work contributed “slightly more than half” the $59.7 million in operating income reported last year by Babcock’s technical services unit, said Jenny Apker, vice president of investor relations. That unit contributed about 17 percent of the company’s total operating income.

“The decision means Babcock will likely get a second shot at keeping the contract for the long term,” said Brian Friel, a government-contracts analyst at Bloomberg Industries. “It also means they’ll get to keep billing for their work while the Energy Department decides how to proceed.”

Babcock rose 2.6 percent to $27.15 in New York, the biggest gain since Feb. 27.

The Energy Department didn’t properly evaluate cost savings proposed by the bidders when it awarded the contract for nuclear site management and construction, Ralph White, the GAO’s managing associate general counsel for procurement law, said in a statement.

New Competition

The department’s National Nuclear Security Administration “failed to meaningfully assess the majority of each offeror’s proposed cost savings, and based its source selection decision on the unsupported assumption that all cost savings proposed by every offeror would be achieved,” according to the statement.

Josh McConaha, a spokesman for the nuclear security agency, said officials were reviewing the GAO’s decision. “We’re going to take some time before settling on our path forward,” he said in an e-mail.

Babcock and its partners “believe the GAO’s decision supports our concerns about the initial award of this contract,” E. James Ferland, Babcock’s chief executive officer, said in a statement.

‘Strong Team’

Bechtel officials were confident that the nuclear security agency had made the correct decision in awarding the deal to their company, said Jason Bohne, a spokesman for the San Francisco-based contractor.

“We’ve got a strong team and we brought them a credible and innovative solution,” Bohne said in a phone interview. “We’re happy to provide more information.”

The contract was awarded Jan. 8 to Bechtel’s team, which includes Bethesda, Maryland-based Lockheed Martin Corp. (LMT) and Arlington, Virginia-based Alliant Techsystems Inc. (ATK) It consolidates Babcock’s two largest federal contracts, Friel said.

The work involves operating nuclear sites in Oak Ridge, Tennessee, and near Amarillo, Texas. It also includes construction of a uranium processing plant at the Oak Ridge location and an option to eventually operate a third nuclear site near Aiken, South Carolina, according to the GAO statement.

To contact the reporter on this story: Nick Taborek in Washington at ntaborek@bloomberg.net

To contact the editor responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net

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