Defense Procurement News

Boeing is negotiating with the machinists union who make up the core of its workforce on both military and commercial aircraft. Today they sent their best and last offer. This includes the employees who will build the tanker for the US Air Force. So in the middle of trying to write and cost a proposal to the Air Force for a program that is seen as key to the company holding onto a market they are trying to prevent work stoppages. Strikes are the kind of thing that can kill a program’s schedule.

See Excite News for more.

After meeting with DoD and the US Air Force to discuss the new tanker RFP due to the GAO upholding their protest, Boeing is now saying that without significantly more time to prepare a proposal they may have to drop out. The new schedule is for the Boeing and Northrop Grumman teams to submit by the end of October with a decision before the new calendar year. Boeing is saying that they may need to bid a larger aircraft then the KC-767 proposed last time due to the fuel capacity and range requirements. A variant of the 777 would have to be used. Boeing supposedly is asking for a more then 180 day delay in the submissions. EADS and Northrop Grumman will most likely submit a tweaked version of their original winning proposal.

For more see The Wichita Business Journal and WashingtonPost.com.

In a contract that has fallen to the back burner recently due to KC-45 events, the Air Force announced that they would complete the recompete for the CSAR-X by September. Contract award would be soon after. The CSAR-X contract to replace the HH-60 PaveHawk aircraft was originally awarded to Boeing with a variant of the CH-47. Sikorsky and Lockheed Martin protested and won with the GAO ruling that the Air Force did not apply the selection criteria properly. The whole contract was recompeted with Boeing, Sikorsky and Lockheed resubmitting bids.

For more see this article at www.pressconnects.com for the Binghamton area.

This article in the Deutsche Welle provides a good round up of the current on goings of the KC-45 recompete. It reiterates that despite rumors on not participating in this round Boeing went ahead and had their meeting with OSD and the Air Force to discuss the RFP. Obviously there is a great deal of interest in Germany, and Europe as a whole, for EADS to win the contract. It would be the largest to date for a primarily European based company.

Despite reports earlier in the week, it seems that Boeing will pursue the KC-45 re-proposal. See a story here. The two possible contenders met with US Air Force and DoD representatives to talk through the new RFP. The goal of OSD is to award a contract by the end of the year. The tanker replacement process started 7 years ago with the new delays a KC-145 replacement may not be available until 2012-2014.

The GAO released a report stating that in their rush to purchase Mine Resistant Ambush Protected (MRAP) vehicles the services may have set themselves up for some long term costs that were avoidable. See the story here. No kidding. The USMC and Army were thrown money and direction by Congress to purchase as many MRAP as possible and rush them into service. Do you think that there were some thought and steps in the contracting process that could have been more thorough? In the long term neither service wants the MRAP, which was a knee jerk reaction to the IED threat anyway. They are not very mobile or tactical and there will be issues in the future trying to transport them to whatever the next battlefield is.

In light of the GAO report the USAF and DoD decided to recompete the new tanker contract. See an article here. This, like the CSAR-X, means that a whole new competition will be held. The Air Force will rewrite the RFP and Boeing and Northrop Grumman will resubmit proposals. Much of the work preparing these will be already done which will speed up the process for the bidders.

The GAO released a summary of why they upheld the protest by Boeing over the KC-45 award. See an article here. The chief reason was due to the Air Force’s failure to properly apply the criteria for source selection. Of the several reasons listed two ones that stand out is that they gave EADS credit for exceeding a requirement when they should not have, and rather than just noting the risk associated with the Boeing bid the Air Force calculated a dollar figure to overcome that risk. This alone drove up the cost proposal of the Boeing K-767 aircraft. The Air Force technically still does not have to withdraw the award to Northrop Grumman and EADS, but they would be best off reopening the competition.

EADS shares are down in Europe, and I am sure Northrop Grumman’s will also drop today. See this article. The market is assuming that the Air Force will follow the GAO’s recommendation and reopen the competition. EADS performance has been heavily affected by the delays to the A380 and the scandals with their management. Also they have labor issues as they try to sort out the French-German split and make themselves more efficient. There is still a good chance that EADS will win the new competition.

The GAO ruled today in Boeing’s favor on the KC-45 protest.  They decided that the Air Force failed to properly apply its source selection criteria and did not calculate some of Boeing’s costs correctly.  See a story here.  The GAO recommended that the competition be reopened.  This is what happened with the CSAR-X contract, ironically enough won by Boeing but now back in source selection.  The Air Force is not required to follow the GAO’s recommendation, but if it does not Boeing is sure to go to the Court of Appeals and Congress could make it very difficult for the Air Force to execute the contract.

This article describes a belief that Boeing will move to the next protest step, the Federal Court of Appeals, if the GAO doesn’t rule in its favor. This is not unprecedented, many protests have moved on to this final step. The idea that the Court would continue to put a hold on the contract may not be so true. The Court of Appeals still will most likely rule the way the GAO did, it is very rare that they overturn such a decision. Anyway it seems that this contract fight will continue, the loser being the US Air Force as they wait for a new tanker.

This article is a good summary of the KC-45 contract. The GAO is supposed to rule on Boeing’s protest within the next two weeks. One would have to bet that they will disallow the protest. There is a chance though, that somehow the Air Force screwed up in how they applied the criteria. Then the process would be reopened again, like the CSAR-X. The article also raises the issue of the US Presidential election. John McCain was the key person that got Boeing in trouble over the attempted lease deal five years ago, and Senator Obama represents the state where Boeing now has its headquarters. Congress has also held off weighing in while the protest wound its course. It is best to think that this is not over yet.

The GAO testified again to Congress on how DoD acquisition programs are way behind schedule and way over budget. Imagine that? This has been a running refrain for the last forty years or so. One of the issues is that the government workforce managing these programs has gotten smaller while demands have increased over th e last six years. A further one is that the services don’t cooperate on requirements. Fixes have been proposed and implemented many times, but the biggest problems of requirements growth after initiation and relying on technology reaches never seems to go away.

The EU Ambassador to the United States (Who knew?) criticizes Congress for including a provision in the FY09 House Defense Authorization Bill that bars US contracts being awarded to companies accused of receiving illegal subsidies at the World Trade Organization (WTO). Of course they mean EADS who have just won the KC-45 contract. The Ambassador points out that if it is mearly the accusation then there is nothing stopping a US company from accusing its foreign competitor of having received these subsidies, even if they have not. It would make more sense to bar those convicted of this. EADS did receive these subsidies for a variety of programs. They claim they paid them back with interest. The WTO will rule later on this. As we have said many times before the Congress was the one who overturned a sole-source contract with Boeing for the new tanker and forced a competition.

According to this article a Washington Democratic Congressman wants to introduce legislation that requires the DoD to evaluate the “green house gas” emissions when awarding defense contracts. If this had been done as part of the KC-45 award, then Boeing would have won as nominally the KC-767 emits less harmful gases then the larger A330.   Read the rest of this entry »

This article nicely summarizes the situation with protests. In a follow-up to the earlier discussion by Secretary of Defense Gates this makes it seem that DoD is getting tired of companies protesting losses. Unfortunately as we have discussed previously there is nothing to lose for these companies. Business opportunities are limited and the only way to get around a loss is to protest. Of course it creates issues for the winner and DoD in executing what could be very critical programs for the US military. There will be more to come on this.

Secretary Wynne of the US Air Force discusses protests in this article. The gist is that the Air Force is accepting protests as a matter of course and is working to make the selection process more transparent in an attempt to limit them. The key quote is “”We’ve got so few suppliers that I’m not going to treat them badly because they protest. It’s their right,” Wynne told an aerospace industry group.”   Read the rest of this entry »

According to this story during testimony about the FY09 Defense budget Secretary of Defense Gates warned that adding a requirement to contract awards for US jobs would only provoke retaliation by US allies in Europe and Asia. Currently Federal procurement law does not have increasing or protecting US jobs as a consideration for evaluating and awarding contracts. Congress can certainly add that to the law, and some have mooted they will, but it would come at a price. The US defense industry is now dependent on non-US companies for many parts and products. US allies are also dependent on US companies for a large amount of their systems as they do not have the capability to produce them. Any attempt by the US government to prevent foreign companies from competing could backfire and reduce the market for US companies. As we have stated here many times with the consilidation in the US industry in the Nineties it is hard to get decent competition for these kind of procurements. Only Boeing, EADS and Russian companies could have bid on it; McDonald Douglas is long gone, so Congress needed to expect this kind of situation.

As part of their work on the defense budget the HASC is going to ask the GAO to investigate whether there are too many protests. See the story here. As we have previously discussed ad nauseum there is little disincentive for a losing contractor to protest. At the best they win, and the worst they lose but it takes little time and money to cut the necessary legal documents and fax them in. With the number of large contracts declining, and their worth growing, there will continue to be protests as the various contracts awarded. It has not just been for large development and procurement contracts, there have been protests of service ones as well. The GAO dismisses most of the protests as it takes a really big screw up by the acquisition and contract people to uphold them, but the delay the programs and cost the winner and the government time and money. Since the right to protest is pretty much part of Federal contract law it will be hard to change the number without changing that, unless the Congress wants to start punishing for frivolous protests. That is not common in American legal tradition, but we will see.

As part of the beginning of the mark-up of the FY09 President’s budget by the various House and Senate committees Congress is beginning to debate the future of the KC-45. According to this article, Congressman Young from Florida has suggested that the US Air Force split award the tanker contract. This would mean half goes to EADS, the winner, and half to Boeing. While this may be a politically judicious solution it has many impracticable aspects. First the cost increase to the total program would be significant as there would now be two sources of parts and two training systems set-up for the different aircraft. Second the Air Force would have to revisit the whole concept of basing and deployment as you would now have a mix of larger and smaller aircraft. The basis for the whole program is a capability requirement that feeds from larger OSD requirements to support the actual warfight. The split might mean more then the current planned buy would be necessary - another cost increase. The DoD and USAF are taking a position of waiting for the GAO ruling in about 40 days before anything is decided. Congress would be advised to do the same.

Northrop Grumman released a press release on the efficiency of their aircraft, strategically called the KC-45, versus the Boeing 767 tanker. It states that using the formula the USAF developed their aircraft more efficiently delivers fuel then the 767. Boeing, claims Northrop Grumman, had to create their own formula to get a favorable result. If you think about it, the ability to carry more fuel to a certain distance will make up for the fact that you burn more gas to get there. If the requirement is 50K of fuel at 1000 nm range then starting with more fuel will give you more fuel at that range, assuming your airplane has similarly efficient engines. The GAO ruling on the protest should be interesting, and cannot come too soon.

This article explains why some feel that Democratic candidate for President, Hillary Clinton, has been accused of double standards on the KC-45 contract. The basic argument is that she is very supportive of the VH-71 contract for the new Presidential helicopter. This is also a foreign aircraft teamed with a US integrator, here Lockheed Martin. The fact that the final assembly is done in Oswego, NY as compared to Alabama has nothing to do with it she says. On the KC-45, like many Democrats, she has taken a protective stance. While not as outspoken as Barack Obama, she has made noises of disapproval of the selection of EADS over Boeing. Senator McCain, due to his rather role in the whole matter, supports the Air Force’s position. More to come, I am sure.

In this story it is clear that the Democratic members of Congress will interfere with the KC-45 award, no matter what the GAO says. The House is moving to defund the program if the GAO opens up the contract. Mr. Murtha misspoke when he said that the GAO would overturn the award. They cannot do that, just direct, as with the CSAR-X award, that the source selection be reopened. It is also clear that members from states that Boeing is in will move to conduct an investigation no matter what that will delay the program. It is also interesting that they are now blaming John McCain, the Republican presidential candidate, for throwing out the lease with Boeing. They weren’t supporting Boeing when their executives and USAF acquisition people were going to jail over the deal. As previously reported any attempt by Congress to muddle up the deal purely on political and nativist grounds will only make it difficult in the future to get competition on other contracts.

According to The Hill Boeing is using its lobbyists to push Members of Congress to receive a briefing from the CIA on “foreign companies” using questionable means in their attempts to win contracts. See the article here. Of note the only two Congressman to talk on the record about this were Tiahart from Kansas, a vocal opponent of the deal and a former Boeing employee and Dicks from Washington. Both have been very supportive of Boeing in their attempt to throw out the KC-45 award to Northrop Grumman and EADS. Obviously Northrop Grumman is upset that Boeing would be stooping to this. The protest result will be announced in early June by the GAO. Congress cannot do anything but de-fund the program, something they are hesitant to do as it is important to the modernization of the Air Force.

The San Antonio Express-News points out that one of the goals of the DoD procurement process is to deliver the best value to the nation and the taxpayers. Money quote “All this would be well and good if they were talking about a job creations program or two kinds of widgets that were essentially the same. Instead, they’re talking about a system essential for the projection of American military power and a critical component of national security.” As the editorial points out Congress will criticize the services for wasting money, or as in here, not picking the right contractor.