The decision, announced Wednesday, to take the $35 billion contract for 179 air tankers away from the European Aeronautic Defense and Space Co. and its American partner, Northrop Grumman, and force EADS-NG to re-contest the contract with its rival Boeing broke all precedents. Never before in modern times has any U.S. administration made such a decision.

Sometimes, enormously expensive programs have been shut down. The Bush administration did just that for the Future Intelligence Architecture program on which Boeing was also prime contractor for the next generation of intelligence, surveillance and reconnaissance space satellites. But never before has a major procurement decision been nullified and thrown back into the competitive hopper.

But now that a precedent has been set, it could happen again. Even if EADS and Northrop Grumman still manage to win the re-competition contest for their KC-45A air tanker, a modified version of the A-330 Airbus, Gates' decision has lastingly changed the way the U.S. armed forces do business with their prime contractors in the defense industry.

Every major Pentagon procurement decision, whether it be for helicopters and combat aircraft, main battle tanks, armored protection vehicles, warships, submarines or space-based systems, will now be made under the shadow of greatly increased congressional and media attention. All Department of Defense and U.S. armed forces decision-makers will be aware that if their decision is not absolutely clear and scrupulously fair, they will be much more vulnerable to the loser company or companies waging well-funded media and political campaigns to get the decision re-evaluated.

Second, Gates' decision provides welcome credibility and bite to the too often neglected and first-class Government Accountability Office. Over the past decade the usually criminally underfunded GAO has continued to stake out and jealously protect its reputation as one of the best, most honest, thorough, accurate and uncorrupted agencies in either Congress -- to whom it reports -- or the federal government.

But the GAO has never had, and still doesn't have, any legislatively mandated teeth to enforce any of its criticisms, assessments and constructive suggestions to improve different aspects of the U.S. government. Gates' decision marks the first time any GAO assessment of a U.S. government or armed services major procurement decision has actually led to a major contract being nullified and then re-competed.

In the future, therefore, whenever the GAO takes a long, hard look at how any Pentagon-approved contract and contractor are performing, the company or companies in question will tremble a lot more and take a lot more care to try to get their systems delivered within schedule and under contract.

Gates' decision curiously didn't hurt Northrop Grumman much in the marketplace. In the first few hours after the decision was announced, the company's stock value on Wall Street dropped by only 0.2 cents. The decision, however, had a much bigger and positive impact on Boeing, whose share values initially rose by 1.2 cents -- six times as much as Northrop Grumman's had fallen.

This may be explained in large part by the fact that Northrop Grumman was the junior partner to EADS in the deal. The KC-45As would have been manufactured mostly at EADS' existing aircraft plants and subcontractors across the 27-nation European Union, but primarily in Germany and France. Northrop Grumman's part of the deal would only be to assemble the parts at a new plant yet to be built in Alabama, if the contract still goes to it and its partner.

Losing the contract, however, would be a much bigger blow to Boeing, whose huge export airliner business is in fierce competition with EADS' heavily government-subsidized Airbus line all around the world.

But Gates' decision will have international and strategic repercussions far beyond the confines of the aircraft-making business.

(Part 3: The impact on trans-Atlantic ties)

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