Tanker Truths

10 Apr 2008
Reuters notes Boeing's arguments about cost are a red herring
A Reuters report notes that a key aspect of Boeing's attempt to take away a contract to build America's next generation of aerial refueling tankers from Northrop Grumman is because the Air Force arbitrarily assigned higher anticipated costs to Boeing's bid.

But in fact, the Air Force used common sense — and commonly-accepted methodology — to assign a higher cost to Boeing's as-yet-unbuilt aircraft.

In its assessment of Boeing's bid, Reuters reported the Air Force assigned more than five times the extra cost to Boeing's losing bid as it did to Northrop Grumman's.

The reason: Air Force documents show that the higher cost to Boeing was because of risk: Boeing's plane and refueling boom haven't even been built. Traditionally, the Air Force must assign a higher risk — which translates into higher cost estimates — to products that haven't been built, and which could be subject to delays, cost overruns, or both. The Air Force said it had little confidence in Boeing's past performance on program management, no doubt because of its poor performance and late deliveries on tankers to Japan and Italy.

By contrast, Northrop Grumman's plane has been built, flown and tested — having completed 73 flights and over 200 flight hours. What's more, just before it won the contract fair and square, Northrop Grumman's refueling boom conducted a successful aerial fuel transfer test with an F-16 aircraft.

And in the end, as Reuters notes, Boeing's arguments about cost are a red herring — because Sue Payton, the Air Force's top procurement official, has said she would have selected Northrop Grumman over Boeing even if Northrop Grumman's plane had cost more, because the Air Force found Northrop Grumman's plane to be of superior value and flexibility.

That assessment squares with Air Force contracting rules, which require the Air Force to provide taxpayers the best value for their money – but also provide the latitude to select a more expensive product if it is clearly superior in performance and value.

And, in this case, as the Air Force has made clear, Northrop Grumman not only offered a superior aircraft — it offered an aircraft that costs less than the one Boeing would have built.

< Back to index