Monday’s announcement that Northrop Grumman had decided not to bid on a $35 billion Air Force tanker contract virtually guarantees that contract will go to Boeing Co.
That’s great news for Kansas and other states with Boeing plants and employees. It’s also good news for U.S. security and the U.S. military, which will get the refueling tanker it wants, built by an American company rather than the French-based EADS company that was partnering with Northrop Grumman.
Aside from Northrop Grumman and EADS, about the only potential losers on this deal are the American taxpayers, who will be asked to pay for the new tanker without the benefit of a competitive bidding process.
The battle over the tanker contract has been going back and forth between the two bidders for almost a decade. During that time, the Department of Defense accepted, then later rejected, tanker contracts with both Boeing and Northrop Grumman. At different times, both companies have threatened to withdraw from the competition, saying that the bidding process or the bid specifications favored the other party. Even though Northrop Grumman now has withdrawn, the final contract won’t be awarded until September, so stay tuned.
Between now and then, Boeing will be finalizing its bid — and its price tag — for the tanker. An article in Tuesday’s Seattle Times detailed the pricing dilemma facing the company. Without a competing bidder, Boeing theoretically would have a free hand in setting its price. However, the controversy that has surrounded this bidding process will place added scrutiny on how much the Pentagon pays for the tanker. If Boeing is seen to be taking advantage of Northrop Grumman’s departure, there could be a backlash to the contract being awarded without a competitive bid.
There are obvious advantages to keeping key military aircraft contracts with American companies. It’s also important that the U.S. military gets equipment that best serves its purposes. Northrop Grumman contends that the Pentagon’s latest guidelines for the bids “clearly favors Boeing’s smaller refueling tanker,” but if the smaller tanker is what best meets U.S. military needs, the Pentagon shouldn’t change the specifications just to ensure competing bids.
Competition certainly is desirable when it comes to spending taxpayer money, but it isn’t always the most important factor in the purchase of military equipment. Nonetheless, Boeing should understand its obligation not only to produce a superior product for the U.S. military but to do so at a price that is fair to American taxpayers.
Comments
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Made_in_China (Paul R. Getto) says…
Senator Roberts did his job; rigging the bid specifications so only the favored company has a chance is not a new practice. I'm glad Boeing can keep the jobs in Kansas. There are, as the editor points out, larger implications.
just_another_bozo_on_this_bus (anonymous) says…
If the "Defense" Dept. were to actually live up to its name, rather than being a euphemism for an Imperial Military Force, these tankers would be totally unnecessary.
vertigo (Jesse Crittenden) says…
The problem Boeing is going to have is setting the price. Too much and Congress is all over them... too little and they risk losing a ton. How so you ask?
The most important point is that its a fixed plus incentive fee (FPIF) contract. This means that there will be a target price and a target profit summing to a target cost to the government. If the actual price goes above the target price, an agreed upon percentage of the overage (40% in this case) will be deducted from the contractor's profit. In the past, many major acquisitions were written under a cost plus structure where the government paid the contractor the cost of the work plus a profit margin for all work completed (pretty much how lawyers, accountants, and consultants do business).
This FPIF was the reason Northrup-Grumman pulled out. Too much risk involved for them in their pricing. If they overshoot their bid then 40% of the cost overruns come out of their pocket.
job4mike6 (anonymous) says…
Mr. Ghetto-
While I frequently agree with your views, you are way off base here. Bid rigging is a felony crime related to a price setting conspiracy. Your phrase "rigging the bid specifications" incorrectly and, in my opinion, unfairly taints Senator Roberts with a felonious act. I suggest you consider an alternative hypothesis. Both Boeing and the Northrup-Grumman/EADS team were attempting to capitalize on their present commercial airframe designs, namely the 767 and Airbus A330 airframes respectively. The two engine 767 and the four engine A330 are significantly different. In the military requirements process, there is a collaboration between the military user (in this case the Air Force) and the leadership of the DoD (the Joint Staff and the Office of the Secretary of Defense.) The military specs for the replacement tanker came from that process. I suggest you google the acronym "JCIDS" and read further. Legislators and their staffs are not part and parcel of the military requirements (JCIDS) process. Legislators can insert statutory language that limits military contracting officers such as the language that permits the DoD to only buy a certain type of domestic coal for power plants at overseas bases. To my knowledge, that sort of statutory language is not the case here. The A330 was not going to be given credit for its larger size and additional non-fuel cargo capacity compared to the 767. More 767 airframes can be purchased for the same total program amount because the engine buy is smaller (2 vs 4 per airframe) and less raw materials are needed for each airframe. There is a military advantage to a larger numerical tanker force because it can be more places at one time. Military requirements for additional cargo airlift are being met through the C-17 program, the C-5 programs to upgrade engines and avionics, and the C-130J program and are therefore superfluous to the tanker replacement. Further, the larger A330 would require more military construction of ground facilities (such as hangers and parking ramps) than the 767. There are fewer existing overseas bass that can support A330 temporary basing than 767 temporary basing.
However, there remains the greater possibility of overpricing with a single bidder. To avoid this Boeing leadership must place national interests above shareholder interests and the government must carefully evaluate the price realism of the Boeing bid.
I agree this is a good outcome for Kansas. I could never understand why we would want to encourage a new major aero-industrial facility in a hurricane-prone region.
Finally, Mr. Ghetto I suggest you owe yourself some further study of the military requirements specification process (JCIDS) (https://dap.dau.mil/aphome/jcids/Page...) and an apology to Senator Roberts.
vertigo (Jesse Crittenden) says…
Yes we really need these.
Our KC-135 fleet is over 50 years old... having come into service in 1957. It is expensive to maintain aircraft that old. These tankers are literally falling apart.
SFBayhawk (anonymous) says…
"One nation, under God"... that part of the clause sure gets overlooked by Congress in getting "deals" for their individual states. It becomes, "Let's rob the central bank".
Men alwys go for military/sports pork and women for education pork. Like predicting the menu choices in a restaurant.