Appel d'offre USAF pour avions ravitailleurs

the rules of the game seem to be: bid low, aim for the lowest fuel burn
and military-construction costs, maximise your IFARA score, and box
clever in the tie-breaker.

The Draft Request for Proposal for Round 3 of the KC-X tanker competition isn’t even out yet and the procurement process is already perverted.
The DRFP is thought to be ready for release tomorrow (September 24). The USAF reportedly has scheduled briefings for Congress at 11 AM EDT.
In what is clearly an orchestrated effort spearheaded by Boeing, the political focus is entirely on the interim report by the World Trade Organization that Airbus benefited from illegal subsidies for its A-series commercial airliners, including the A330-200 on which the Northrop Grumman KC-30 is based.

Washington State and Kansas Members of Congress demand that the US Air Force include language in the DRFP that considers the launch aid–a reported but unconfirmed $5bn for the A330/A340 sister program–in evaluating the KC-X proposals.
The Air Force says it does not plan to do so.
We do not understand the rationale behind the focus on the WTO interim report. A final report has to be issued and appeals can be filed, a process which will take several years to consider. More to the point, the European Union’s complaint about “illegal” subsidies provided Boeing is pending before the WTO, with this interim report expected in perhaps six months–or about March–unless delayed.
Here is a link to a story that includes a video clip of Members of Congress standing in front of a Boeing prop focusing on the WTO matter.
It is widely expected that Boeing will be found by the WTO to be “illegal,” too. Then Northrop will demand the USAF consider these findings if the Boeing Congressional supporters prevail in forcing the USAF to consider the Airbus interim report.
Then what?
We shared with Boeing IDS our view that this politically-focused WTO campaign will hurt Boeing more than help it because of the expectation that Boeing will be found to have benefited illegally, too. All this current campaign does is muddy the waters and, in all likelihood, won’t win any friends in the USAF procurement process.
The Members of Congress are on hazardous grounds under WTO rules in any event. Article 23 prohibits a country that prevailed in a complaint from taking any punitive action while the case is still pending, as is true with the Airbus interim report. If a prevailing country does so, then this opens the country to sanctions.
Our long-held view that the Northrop KC-30 is more capable than the KC-767 in a sole-source selection remains unchanged. So does our long-held view that there are good strategic reasons (not to mention the political ones) to double the procurement and split the purchase.
We believe Boeing’s suggestion of a tanker even larger than the KC-30 based on the Boeing 777-200 (sub-series to be selected) is a perfect replacement for the aging McDonnell Douglas KC-10 in the future procurement for this aging aircraft.
We believe the Boeing-orchestrated, WTO-focused campaign is a grave error. It sets up a similar Northrop campaign when (and in our belief, this is not “if”) Boeing is found by WTO to have behaved improperly. This political campaign subverts an acquisition process that has been tainted twice by improprieties and incompetence. We think it will inflame the USAF procurement against Boeing rather than help its cause–unless a sole-source procurement is forced upon the Air Force and the Northrop-Airbus bid is forced out.
If this happens, the WTO rules will permit the EU to impose sanctions on US trade. We would fully expect Airbus partner-countries to retaliate in their own defense procurements.
It is true the KC-767 (or KC-777) will have no chance in any event to sell airplanes to the UK (which has already selected the KC-30), France (no comment needed on this one), Germany (should it want a tanker) or Spain (does it need a tanker?). This is a sound matter of criticism, where competition should likewise be allowed. We think this is a far, far better-grounded criticism than this spurious WTO thing. The Defense Department has the ability, even under WTO rules, to declare in nation security interests to do a sole source procurement. It missed the chance to do so in Round 2 and now that WTO legal actions are pending, Article 23 would seem to preclude doing so in Round 3.
But what of Boeing’s desire to sell other military goods to these nations, including the 737-based P-8A Poseidon? Boeing IDS clearly has these Airbus member nations on its prospective customer list. Might these countries instead become the launch customers for the Airbus A319 MPA (Maritime Patrol Aircraft) competitor to the P-8A? The A319 MPA has gone “stealth.” Once openly talked about at Airbus and EADS, today you can’t find any reference to the airplane at all on the EADS or Airbus websites. The last time we queried, which was last year, EADS MTAD refused to discuss the airplane. We don’t know if this is an active project or not today. Information about the A319 MPA is scattered about the Internet but an Airbus brochure appears and disappears from time-to-time in Google cache (and at least for the moment it’s here, though this has come-and-gone and may disappear at any time. As a document available (even if off and on) in the public domain for many years, we have downloaded the brochure and can make it available to anyone requesting it.
We think the WTO drive places Boeing on very hazardous ground. Does Boeing and its supporters believe its tankers cannot win on their own merits, so this drive is necessary? We have to wonder.
The whole mess is straight out of the satire movie, Dr. Strangelove, which opens with a KC-135 tanker refueling a B-52 bomber. The music is that of a ballet (we think), which is appropriate since Air Force jockeys liken the refueling process to a ballet.
It’s too bad the KC-X procurement isn’t a satire. Jon Stewart of The Daily Show could have a field day with this one.

1. La campagne des pro-Boeing finira par être contre-productive. La plainte de l'UE contre les subventions reçues par Boeing auprès de l'OMC donnera, selon toutes vraisemblances, le fait qu'une partie de ces subventions sont illégales.
   
2. L'A330 reste le meilleur contre le 767.
   
3. La proposition du 777 est intéressante pour le futur remplacement du KC-10.
   
4. Une double source est nécessire.
   

Northrop says US gave Boeing edge in tanker tussle

* Northrop complains pricing data given to Boeing
* Seeks access to comparable information from Boeing
By Jim Wolf
WASHINGTON, Sept 29 (Reuters) - Northrop Grumman said the U.S. government had given rival Boeing a "fundamentally unfair" edge in their renewed battle for a potential $50 billion contract to build aerial tankers.
"Northrop Grumman continues to be greatly concerned that its pricing information from the previous tanker competition was provided by the government to its competitor, Boeing," Paul Meyer, a Northrop vice president, said in a statement.
In what could set the stage for a protest even before the new competition gets under way, Meyer said access to comparable pricing information from Boeing had so far been denied by the Pentagon.
"With predominant emphasis placed on price in this tanker re-competition and Northrop Grumman again proposing its KC-45 refueling tanker, such competitive pricing information takes on even greater importance," he said.
"It is fundamentally unfair, and distorts any new competition, to provide such critical information to only one of the bidders," Meyer said.
He said Northrop Grumman, which remains partnered with Airbus parent EADS for the new competition, would continue to work to fully resolve this issue.
A year ago, the Pentagon scrapped a previous tanker deal awarded to Northrop and Europe's EADS after the U.S. Government Accountability Office, the audit arm of Congress, upheld a protest by Boeing.
The GAO found the Air Force had failed to follow its own rules in evaluating the bids. As part of the fallout from the protest, Boeing received some pricing information, although Pentagon officials sought last week to play down its significance.
Northrop Grumman, prime contractor for the trans-Atlantic team, said it was continuing to analyze the U.S. Air Force's draft bidding rules that were released last week.
It looked forward to discussions with the Air Force to better understand the request, Meyer said.
On Friday, Boeing said it was deciding whether to stick with its modified 767 tanker, which lost the previous, canceled competition to an Airbus A330-based tanker, or go with a larger 777-based tanker -- or offer both.
A senior military officer, at a Pentagon background briefing on Friday, estimated the program could be worth as much as $50 billion, up from previous estimates that put its value at $35 billion over 15 years.
The companies have 60 days to comment on the Air Force's draft request for proposals before final bidding specifications are released. (Reporting by Jim Wolf; editing by Tim Dobbyn)

KC-X fuel offload breakdown
By Stephen Trimble on September 29, 2009 7:35 PM | Permalink | Comments (0) | TrackBacks (0) |ShareThis
Gen Arthur Lichte, chief of Air Mobility Command, probably put it best. When I asked Lichte two weeks ago if the US Air Force would change its "more is better" philosophy on fuel offload for the KC-X contract winner, Lichte replied: "Certainly, when you are talking about replacing a tanker, fuel is important."

The draft request for proposals establishes requirements for minimum fuel offloads at five mission radius ranges: 500nm, 1,000nm, 1,500nm, 2,000nm and 2,500nm. Exceeding the minimum thresholds is not mandatory. But the USAF has establishing a scheme to award between 4-10 bonus points, depending on how much extra fuel is offloaded.

It is possible to compare the three aircraft based on fuel offload estimates provided in Boeing's latest public KC-X presentation. If Northrop Grumman/EADS North America disputes any of Boeing's data about the KC-30, I'm sure we'll hear about it. But here's how the three potential competitors -- KC-767, KC-30 and KC-777 -- compare against each other on fuel offload performance at a 1,000nm mission radius.

Minimum threshold: 94,000lb
KC-767 offload: 97,000lb
4 Bonus points: 106,000lb
6 Bonus points: 120,500lb
8 Bonus points: 143,500lb
10 Bonus points: 147,000lb
KC-30 offload: 153,000lb
KC-777 offload: 199,000lb

If Boeing's data is accurate about the KC-30, the Northrop proposal would enjoy a 10pt advantage over the KC-767 if the USAF awards credit for non-mandatory fuel offload performance, and faces no penalty against KC-777 despite a roughly 30% disadvantage for offload capacity

Call For USAF To Share Boeing Tanker Pricing

Oct 2, 2009



By Amy Butler


Sen. Jeff Sessions (R-Ala.) is introducing an amendment to the fiscal 2010 senate defense spending bill that would block the use of funds for the U.S. Air Force’s KC-X competition unless the service agrees to disclose pricing data about Boeing’s proposal in 2008 to rival Northrop Grumman.

Only a week after the release of the KC-135 replacement draft request for proposals (RFP), politics is taking center stage to potentially influence the way ahead on the program, estimated to be worth $35 billion to the winner. Northrop and its parter, EADS North America, would assemble their tankers in Sessions’ state.

Meanwhile, a prominent former Pentagon acquisition chief is raising questions about the methodology proposed by theAir Force in navigating through the politically thorny competition.

Jacques Gansler held the top acquisition post at the Pentagon, which is now occupied by Ashton Carter, from 1997-2001. He says he is surprised that the Air Force disclosed Northrop’s pricing data for its winning proposal to rival Boeing during the company’s debrief after losing the competition in February 2008 (Aerospace DAILY, Sept. 30).

“They were wrong knowing there was a protest [coming] to give out the pricing data,” he told Aviation Week. Boeing’s protest set off a chain of events that led the service to terminate the $1.5 billion development contract. Those negotiations are still ongoing.

Pentagon officials say the data release to Boeing was legal and “created no competitive disadvantage because the data in question are inaccurate, outdated and not germane to this source-selection strategy.”

This issue, however, hasn’t been dropped. Northrop CEO Ronald Sugar is continuing to press the matter with senior Pentagon officials, says Randy Belote, vice president of strategic communications for the company.

Meanwhile, Gansler is critical of the scoring method outlined by the Air Force to determine the winner. It calls for a pass/fail rating on 373 requirements.

The price of the bids that pass all of those requirements will be adjusted based on performance in various wartime scenarios and peacetime operations.

“My impression is they are trying to avoid a protest instead of trying to do the best thing for the warfighter,” he says. This method, according to Gansler and some industry officials, is not a true “best value” approach.
“You can’t treat a sophisticated item like a tanker as though you are buying Kleenex,” he says. “It is not a commodity… The idea of simply awarding something so important and sophisticated to the lower bidder is not the way to do it.”

One official familiar with the Northrop/EADS team says the Air Force’s source-selection methodology favors a smaller and, thereby, less expensive aircraft. “Every gate is a price gate,” this official says.

Northrop has not yet threatened not to propose a bid for the competition. However, during the last competition the company did threaten to pull out, prompting a change in the proposal scoring method that contributed to the company’s eventual win.

Gansler suggests that the most likely way to move ahead with the program and reap the benefits of consistent competition is for the Pentagon to swallow the additional cost to fund both development programs up front. Annual competitions for production lots would then garner savings in the long term, he suggests.

Gansler, who is not affiliated with either team, is now director of the University of Maryland’s Center for Public Policy and Private Enterprise.

Pentagon''s KC-X Process Questioned

Oct 5, 2009



By Amy Butler


The U.S. Air Force is already on the defensive about its plans for the KC-X competition, with a former top procurement official questioning the source-selection methodology and Northrop Grumman/EADS asserting it has been put at a disadvantage by the disclosure of its pricing data to rival Boeing.

The Pentagon last week dismissed complaints from a Northrop Grumman executive on the pricing data claim. But the issue is already festering, potentially spoiling the Air Force’s hopes to have a KC-135 replacement on contract by mid-2010. Discussions continue between Northrop Grumman CEO Ronald Sugar and top Pentagon officials, according to Randy Belote, the company’s vice president for strategic communications.

In its Sept. 29 statement, Northrop Grumman says it is “greatly concerned” that pricing data from the 2008 competition was divulged during a debriefing to Boeing on its loss.

“With predominant emphasis placed on price in this tanker re-competition and Northrop Grumman again proposing its KC-45 refueling tanker, such competitive pricing information takes on even greater importance,” the statement says. “It is fundamentally unfair, and distorts any new competition, to provide such critical information to only one of the bidders."

Northrop Grumman won a $1.5-billion development contract for the Airbus A330-200-based tankers, then named the KC-45 by the Air Force, in February 2008; a Boeing protest led to termination of the contract in the summer.

The Pentagon counters that the disclosure was “in accordance with regulation and, more importantly, that it created no competitive disadvantage because the data in question are inaccurate, outdated and not germane to this source-selection strategy.” Northrop Grumman officials have requested that the playing field be leveled by releasing the pricing data on Boeing’s 767-based tanker in the 2008 competition, though the Pentagon has signaled no willingness to do so.

Sen. Jeff Sessions (R-Ala.), however, is forcing the issue with a new amendment to the Fiscal 2010 defense spending bill to block KC-X funding unless the Air Force hands over the data.

Jacques Gansler, Pentagon procurement chief from 1997-2001 and now director of the University of Maryland’s Center for Public Policy and Private Enterprise, is surprised about the disclosure. “They were wrong knowing there was a protest [coming] to give out the pricing data,” he tells Aviation Week. He says with a winner-take-all strategy for such a large program—estimated at $35 billion for 179 tankers—another protest should be expected from the loser of the forthcoming duel. “My impression is they are trying to avoid a protest instead of trying to do the best thing for the warfighter,” he says.

Boeing is apparently trying to remain on the sidelines. “The Air Force clearly and definitively dealt with this issue,” says William Barksdale, communications director for Boeing’s tanker team.

Gansler, who has no affiliation with either team, also criticizes the source-selection methodology. Each bid will be judged on a pass/fail basis on 373 mandatory requirements, and thereafter the remaining bids will be priced, with cost adjusted based on two other “non-price” factors, according to Deputy Defense Secretary William Lynn. These factors are wartime effectiveness, or how the aircraft will operate during a surge operation, and peacetime efficiency, based on the KC-135’s 489-hr.-per-year average rate.

According to Gansler and some industry officials, this not a true “best-value” approach. “You can’t treat a sophisticated item like a tanker as though you are buying Kleenex,” he says. “It is not a commodity. . . . The idea of simply awarding something so important and sophisticated to the lower bidder is not the way to do it.”

One official familiar with the Northrop Grumman/EADS team says the Air Force’s source-selection methodology favors a smaller and less expensive aircraft. “Every gate is a price gate,” the official says.

During the last competition, Northrop Grumman/EADS made a similar argument, threatening not to bid. The Air Force then devised the Integrated Fleet Air-Refueling Assessment (Ifara), a modeling tool used to judge effectiveness and flexibility of the aircraft in various war scenarios. This was weighed equally with cost last time around.

Gansler says the approach most likely to deliver tankers in a timely fashion would cost the government more upfront but save money in the long term. He suggests funding both developments and conducting annual competitions—with the best-performing team winning the lion’s share for each year. Saying “history is on my side,” he notes that choosing a single supplier for a system does not take advantage of competition to maintain pressure on price.

Meanwhile, Boeing is considering offering two proposals in order to clench the “must-win” program, according to officials close to the company’s planning. They say they are looking at the 767 and 777 as platforms for the design. One of the officials says the cost of proposing two bids is not prohibitive for Boeing in comparison to the amount of money spent to date on this campaign.

Boeing: What should we ask the Air Force?

Boeing is posing questions to the U.S. Air Force to clarify the draft aerial refueling tanker request for proposals and is open to suggestions for what else to ask, spokesman Bill Barksdale said Friday.

"Our United States Tanker team has spent a great deal of time studying the draft RFP. Remember this is the main document we'll be using to decide which member of our KC-7A7 'family of tankers' to offer, or whether to offer both," Barksdale wrote. "But we can't just make decisions on what's written in the document alone. Our main focus as we drive toward some key internal decisions is clarity. We must clearly understand how the service's requirements are defined and prioritized, and how our proposal will be evaluated."

Any potential bidder can submit questions to the Air Force and have them answered online at the Federal Business Opportunities Web site, Barksdale noted. "We began submitting questions earlier this month and look forward to seeing the answers posted on the public website soon. While some of that Q&A may be administrative in nature, you might gain some interesting insight into how the process works by checking out the site. Feel free to tell us what you'd ask."

...
Louis Gallois a également dit qu'EADS restait préoccupé par la divulgation d'informations sensibles à Boeing dans le cadre d'un contrat de tankers pour lequel ils sont en concurrence mais qu'il ne considérait pas cela comme un élément de rupture du marché.

La divulgation d'informations relatives aux prix est troublante dans la mesure où EADS et Northrop Grumman comptent représenter un avion ravitailleur conçu à partir de l'A330 lors de la prochaine étape du marché, a expliqué Louis Gallois, ajoutant qu'EADS et Northrop apprécieraient de disposer de ce même genre d'informations sur l'offre de Boeing.

Ce contrat de l'US Air Force a été remporté une première fois par Boeing, puis par EADS et Northrop, avant d'être une troisième fois remis en concurrence.

Air Force answers more tanker questions
The Air Force has put out 11 more pages of answers to questions about its draft aerial refueling tanker request for proposals.

The Air Force put out a first set of answers on Oct. 19.

Here are some highlights from the new batch:


The draft bid would only consider non-mandatory items if competing bids are within 1 percent of each other's adjusted price because the Air Force considers those extra items to be worth a premium of no more than 1 percent.
The government will not tell bidders if they are within 1 percent of the lowest offer or not.
The government will not allow bidders to trade out mandatory items for improvements in cost or schedule; bidders must meet all mandatory requirements.
The 11 bases chosen to assess facility cost impacts include major and minor bases, and costs evaluated will only be for hangars and pavement.
There is no requirement for an oral proposal.
Other answers address criteria on such issues as fire-suppression, taxi distance, turnaround time, mission planning, fuel flow rates, load-carrying ability, basing prioritization, the number of tankers needed for missions, pricing (with and without engines), seating, the ability to continue refueling despite a system failure, documentation and credit for tanker refueling capability.

Ravitailleurs : un sénateur américain influent trouve la compétition biaisée

Un sénateur américain influent a annoncé lundi avoir écrit au secrétaire à la Défense Robert Gates pour dénoncer la compétition biaisée, selon lui, pour fournir des avions ravitailleurs à l'armée de l'Air, entre Boeing et une alliance Northrop Grumman-EADS.
"En dépit d'assurances du département de la Défense et de l'armée de l'Air que cette concurrence serait égalitaire, elle favorise clairement un compétiteur", indique Richard Shelby, sénateur républicain de l'Alabama.
"L'appel d'offres porte une attention trop grande au fait que le prix le plus bas doit gagner, sans considération pour les capacités offertes", poursuit ce membre du sous-comité Défense de la commission budgétaire du Sénat.
"Nous ne pouvons pas faire voler nos militaires dans des avions de papier simplement parce que c'est moins cher", ajoute-t-il.
Le ministère de la Défense a annoncé en septembre qu'il rouvrait la compétition pour le renouvellement de sa flotte d'avions ravitailleurs, qui oppose le constructeur américain Boeing à l'alliance entre l'européen EADS et l'américain Northrop Grumman.
Ce contrat de 35 milliards de dollars sur 15 ans, pour la livraison de 179 appareils, avait été attribué par le Pentagone en février 2008 à EADS et Northrop Grumman. Mais à cause d'une erreur d'appréciation du prix, Boeing avait obtenu l'annulation de la commande.
M. Shelby est élu d'un Etat où Northrop Grumman et EADS comptent investir 600 millions de dollars et créer 1.300 emplois pour y assembler leur appareil.

Northrop won't rule out boycott of tanker rematch

* Pentagon says any boycott hard to imagine
* Northrop may take legal action over pricing info
* Says Pentagon proposing a "cost shootout" (Adds Pentagon dismisses possible boycott)
By Jim Wolf
WASHINGTON, Oct 28 (Reuters) - Northrop Grumman Corp left open the possibility it might boycott the Pentagon's multibillion-dollar aerial tanker recompetition, faulting draft bidding rules and expanding a complaint that rival Boeing Co had been given an unfair edge.
Northrop, which is partnered with Europe's EADS, said Wednesday the proposed rules set up a counterproductive "cost shootout" with Boeing that would spur a "race to the bottom" and reduce the capabilities of the refueling tankers.
The Pentagon's draft request for proposal, released Sept. 25, would eliminate a more capable aircraft even if it cost just 1.1 percent more because of a Pentagon proposal to weigh all 373 threshold bidding requirements equally, Mitch Waldman, a Northrop vice president, told a briefing.
"Compared to the last competition, we may be on a path where the taxpayer may pay more for less capability," he said.
Asked whether Northrop might decline to compete in the absence of significant changes to the rematch, Waldman said: "We really need to see what the final request for proposals looks like before we make that determination."
The Northrop-EADS team won a potential $35 billion contract in February 2008 to supply the U.S. Air Force an initial 179 tankers, which are used to refuel planes in flight. The Pentagon scrubbed the deal after federal auditors upheld a Boeing protest that the Air Force had failed to follow its own scoring rules.
The current contest, the first phase of a fleet renewal worth more than $100 billion over coming decades, is the Pentagon's third try in eight years to replace its KC-135 tankers, which average more than 50 years old.
Geoff Morrell, the Pentagon press secretary, dismissed any possible boycott.
"I find that extraordinarily hard to believe. This is an extremely lucrative contract and I don't think we have any doubt that there will be a healthy competition to win it," he told reporters at the Pentagon.
Based on complaints from both sides, he added that, "we may have found the sweet spot" for structuring a contest that will be fair and impartial.
Northrop, pressing its complaint about pricing information given to Boeing after the last round, said the U.S. government's disclosure of its bid was "not in accordance" with U.S. regulations, contrary to government claims.
The government gave Boeing Northrop's actual bid prices for four development aircraft, 64 production units and 179 planes, not just the "overall evaluated cost or price," Randy Belote, a Northrop spokesman, told reporters.
Asked what Northrop might do about this, Belote said options under review included pressing for Boeing's tanker pricing data under the Freedom of Information Act, although he said it is exempt under that, and unspecified "legal action."
Northrop's preference, he said, was to work with the government to "try to resolve this issue as quickly as possible."
Boeing has declined a Pentagon request to release its own pricing data from the last competition, the Pentagon's general counsel, Jeh Johnson, told Northrop in a letter dated Sept. 23 and obtained by Reuters.
A Defense Department spokeswoman, Cheryl Irwin, said the Pentagon was very "cognizant of the criticisms made" and was taking "very strong steps to try and correct those criticisms."
Boeing took a shot at the Northrop-EADS team for going public with its concerns about the proposed bidding rules.
"While our opponent and their supporters have begun attacking the U.S. Air Force and its KC-X Tanker draft Request for Proposal, Boeing has chosen to work within the process and continue asking questions," said Bill Barksdale, a Boeing spokesman.
Boeing Chief Executive James McNerney last week took aim at the Air Force for exempting a trade dispute between Brussels and Washington over alleged aircraft subsidies, a factor he said could harm Boeing's chances in the tanker bidding. (Reporting by Jim Wolf; Editing by Tim Dobbyn, Gary Hill)

With Boeing and Northrop Grumman still in the Q&A stage with the USAF in advance of a Final Request for Proposals in the KC-X competition, we predict that Boeing will offer the KC-767 and not the KC-777.

Here’s why:

•Boeing simply cannot afford another new airplane program right now. The KC-777 is only a concept airplane; Boeing would have to sink billions of dollars into the development of this derivative aircraft. The cost overruns and customer penalties for the 787 and, to a lesser extent, the 747-8, are already squeezing the company. Boeing is faced with the larger problem of potentially launching an entirely new airplane program in 2011-13 to replace the 777 to meet the forthcoming Airbus A350; or a enhanced derivative of the 777; and a re-engined 737 or a successor airplane, also within the 2011-2015 period.
•The company has billions in “sunk costs” in the KC-767 International program. Financially, it makes far more sense to offer this airplane to the Air Force.
•Offering a tanker based on the 777 will open Boeing to WTO issues. The European Community identified the 777 as a major beneficiary of “illegal” subsidies in its complaint to the WTO against Boeing. As long as US interests are attacking illegal subsidies provided Airbus on the A330-based KC-30 offered by Northrop Grumman, any 777-based tanker will similarly come under attack, assuming the WTO rules in the EU’s favor, as expected.
•The 767 is less likely to trigger WTO issues. Launched in 1982, the 767–although included in the EU’s broad-based complaint (if we recall correctly)–the amount of “illegal” subsidies, if any, pales to that alleged for the 777.
•Boeing still has development issues with the KC-767I (Italian) version. We understand the centerline hose-and-drogue system now is causing Boeing headaches. (Boeing declines comment.) Still, the last thing Boeing needs are the risks associated with an entirely new tanker in the KC-777.
•A Boeing executive spilled the beans and said publicly, in front of more than 100 people, that the company was “leaning” (his word) toward the 767

Boeing, Northrop Sour On KC-X Draft RFP

Nov 10, 2009



By Amy Butler


The top U.S. Air Force civilian overseer says changes to the plan to buy KC-135 refueler replacements are expected to come out later this month. Both competitors are grumbling about the draft KC-X request for proposals (RFP).

Air Force Secretary Michael Donley says the service is open to amendments. “I would imagine that we are going to consider some change to the RFP,” he tells Aviation Week. “We think it is a strong RFP and we think the main outlines of it are very well [put] together. But, we continue to get questions.” More than 200 queries have been submitted as part of the draft RFP process, and either contractor could threaten not to bid if the final RFP is not to its liking.

Boeing is expected to propose a 767- or 777-based tanker while Northrop Grumman/EADS is offering the European-designed Airbus A330. The draft RFP, issued Sept. 24, puts heavy emphasis on cost and includes 373 pass/fail threshold requirements. And, in another shift from previous KC-X contests, the Pentagon is pursuing fixed-price development and production contracts.

On the heels of a press conference held by Northrop Grumman/EADS late last month to lay out the team’s complaints, Donley says he does not want emotion to dominate this competition. “We’ve been criticized by both sides, as expected. It is up to the contractors to decide how vocal they want to be in this debate,” Donley says. “I think that some of the recent announcements suggest we will not avoid the controversies that we experienced last time around. The level of debate and the heat that contractors and their supporters want to put around these issues could repeat themselves.”

Just over a year ago, Defense Secretary Robert Gates halted an attempt to recompete the KC-X contract, calling for a “cooling-off” period. However, since the draft RFP was issued, lawmakers supporting both teams have publicly decried it.

“We really don’t need the emotional [element] and this is a tough project in and of itself,” Donley says. “We don’t need all of the difficult and complicating elements that are added to that when people try to develop campaigns in favor of their program.” Northrop Grumman/EADS won a $1.5-billion development contract in February 2008, but it was terminated after procurement missteps came to light. They were discovered by the Government Accountability Office after Boeing protested the win.

One of Northrop’s current complaints is a disclosure of the company’s proposed price in the last competition to Boeing that was “not in accordance” with federal acquisition regulations, according to Randy Belote, the company’s Washington-based communications vice president. He says they hope to iron this out directly with the Air Force, but acknowledges that options, including a legal remedy, are on the table.

Furthermore, Northrop is complaining that the fixed-price development and procurement structure expose the companies to too much risk, because the new RFP calls for developmental items.

Donley says the service will continue to use fixed-price contracts. “As we go forward, I think we’ll try to put more pressure on our suppliers to keep cost down,” he says. “There are cases out there, and I think tanker is one of them, where the technology should be pretty mature.” Northrop’s previous contract was structured under a cost-plus award.

Not all technologies for the KC-X are mature, however. One industry official said Northrop’s design addressed 80% of the 373 pass/fail items. “A portion of these requirements are not on our aircraft today,” says Mitchell Waldman, business development vice president. Boeing’s team must address the requirement for fuel offload at 1,200 gal. per min. (GPM). In the last competition, Boeing said its sixth-generation boom could offload more than 1,000 GPM. The fifth-generation boom used for the Japanese and Italian tankers can offload 900 GPM.

Boeing is mum about its draft RFP complaints. But, on the company’s tanker web site (unitedstatestanker.com), communications official Bill Barksdale downplays Northrop’s call for the release of Boeing’s pricing data. “There’s no requirement for the government to share the losing bidder’s proprietary pricing information with the winner or the public.”

Waldman suggests the Air Force revert to the RFP that governed the last duel, but fix the elements that went awry. This is unlikely to gain traction at the Pentagon, especially since many of the leaders that crafted the previous competition have left office and the new leadership is intentionally taking a different approach. Northrop officials also mentioned dual sourcing as an option, though this has been staunchly rejected by the Pentagon.

Waldman also complains that the draft RFP places equal value on non-essential and essential qualities—such as sink and toilet water flow and fuel offload or past performance—respectively. “If everything is important, is anything important?” Waldman said. “In this competition, risk is essentially pass/fail.” In the last competition, key requirements were weighed as well as past performance and risk.

McCain criticizes tanker criteria

U.S. Sen. John McCain, R-Ariz., is questioning the U.S. Air Force's draft aerial refueling tanker request for proposals, according to a Reuters report.
McCain, whose investigation helped upend the service's original plan to lease tanker from Boeing, raised his latest concerns in an Oct. 29 letter to Defense Secretary Robert Gates, according to Reuters, which said it obtained a copy.
Specifically, McCain asked why the Air Force focused on certain costs, rather than others, how the process would assess risk among the bids and how the service decided which requirements to make mandatory or non-mandatory, Reuters said.
The draft request includes 373 mandatory requirements and 93 non-mandatory ones, down from 808 criteria in the previous contest (NOTE: This is corrected from an earlier version of this post). A team of Northrop Grumman and EADS won that contest, which the Pentagon threw out after congressional auditors found serious flaws in the process.
Northrop officials have publicly panned the new draft request as favoring Boeing because it would award the contract to the lowest priced tanker that meets mandatory criteria, after adjusting for certain factors, if the price difference is at least 1 percent. Northrop prefers an approach that would look more at the best balance of cost and features.

Former federal procurement officer questions tanker criteria
The Air Force's draft aerial refueling tanker request for proposals is inconsistent with federal regulations and may violate the law, a former top federal procurement officer told InsideDefense.com.

"Clearly the KC-X draft request for proposals goes against the spirit of the Weapon Systems Acquisition Reform Act and I think you could make an argument that it might even be in violation of the law," Robert Burton, a former deputy administrator of the Office of Federal Procurement, a Defense Department veteran and current lawyer with the Washington, DC, law firm Venable, said in the story.

In the interview and a paper, Burton focused on the draft request's approach of using a pass/fail approach for 373 mandatory criteria and awarding the contract to the lowest-priced plane that meets those criteria, if the price is more than 1 percent lower, after adjusting for certain factors. This is inconsistent with the Weapon Systems Acquisition Reform Act, which requires a more-detailed evaluation of trade-offs between cost, schedule and performance, Burton reportedly said.

This is similar to concerns that Sen. John McCain, R-Ariz., and Northrop Grumman officials have raised. Burton declined to tell InsideDefense.com which company that hired him to prepare the paper, and Northrop tanker spokesman Randy Belote said his company, as policy, does not disclose its consultants' names.

Hat tip to Leeham News and Comment.

Lawmakers Call For Airbus Penalty On KC-X

Nov 19, 2009


By Amy Butler


Sixteen lawmakers — both Democrats and Republicans — are calling on the Defense Dept. to develop a mechanism to penalize a Northrop Grumman/EADS proposal to replace KC-135 refuelers for the U.S. Air Force.

The legislators take issue with the process laid out in the Air Force’s September draft request for proposals for the KC-X competition. Northrop Grumman/EADS is planning to propose an Airbus A330-based design with Boeing likely to offer a 767 or, possibly, a 777. At issue is the Air Force’s proposal not to consider the impact of illegal government aid on the cost of the Airbus-based model. The World Trade Organization issued a preliminary ruling in September that said Airbus did benefit from unfair subsidies used to develop its commercial product line. A final ruling from the WTO is expected next year, although final rulings rarely deviate from the findings of a preliminary ruling.

Rep. Jay Inslee (D-Wash.) says there are several ways to account for the illegal subsidies in the competition. He advocates for using the countervailing duty process, which would be used by the Commerce Dept. to calculate a per unit penalty for A330s based on the actual size of the illegal subsidy. This amount, up to $5 million per unit according to Rep. Norm Dicks (D-Wash.), would then be added by the Air Force to the proposed price of the Northrop Grumman/EADS offering, Inslee says.

“With 10 percent unemployment, this is not a moment for one agency in the federal government [the U.S. Trade Representative] to prosecute and then have another agency, the U.S. Air Force, to be totally oblivious of that prosecution,” Inslee says.

Sen. Sam Brownback (R-Kan.), who hosted the press conference on Capitol Hill Nov. 18, echoed that sentiment. “Defense procurement must be consistent with our trade policies,” he says.

This, however, is a challenge. The U.S. government encouraged a massive consolidation in the defense industry in the 1990s after the end of the Cold War; Boeing is the sole remaining commercial widebody manufacturer in the United States. At the time, government officials found they would allow for competition from the only other source: Airbus. Now, however, that policy is in question because of the subsidy spat.

Rep. Todd Tiahrt (R-Kan.) says that if the defense procurement practices continue to be inconsistent with U.S. trade policy initiatives, the government should discontinue its participation in WTO cases. “If we are not going to use their judgments and we are not going to apply it then we may as well withdraw from the whole organization,” Tiahrt says. “It is this time when we have so many unemployed that we need to be fighting for American workers.”

Several other lawmakers — including Sen. Patty Murray (D-Wash.), Sen. Maria Cantwell, (D-Wash.), Sen. Christopher Bond (D-Mo.), Dicks, Rep. Eric Massa (D-N.Y.) and Rep. Rosa DeLauro (D-Conn.) — also argued that the exclusion of the WTO ruling from the KC-X source-selection method unfairly penalizes American workers, who they say would contribute to building a Boeing tanker.

Offerings from both competitors rely on work content and materials sourcing from foreign countries.

Northrop Grumman issued a statement supporting the Pentagon’s position against accounting for WTO rulings in the KC-X source selection process. “To preemptively force a trade dispute into the tanker procurement process before all outstanding complaints have been fully resolved is a violation of international agreements as well as fundamental WTO rules.” Northrop officials did not attend the press conference, saying it was a “nonevent.”

A case before the WTO to explore claims by the European Union that Boeing also received illegal subsidies through Defense Dept. research contracts hasn’t yet been ruled upon.

Boeing officials say in a statement that they appreciate support from the lawmakers. “We’ve long held the position that government subsidies to Airbus are market-distorting and a violation of WTO rules.” Boeing officials attended the press event, but did not publicly speak.

Though the Pentagon proposed a plan to issue the final RFP by the end of this month, it is widely thought it will slip into December at least to address this issue as well as questions about the source selection methodology raised by both companies and Sen. John McCain (R-Ariz.), the ranking member of the Senate Armed Services Committee.

KC-135 Replacement RFP Slip Raises Questions

Changes to the source-selection plan for the U.S. Air Force’s $35-billion KC-X program are not likely to be substantial, and this could lead the procurement effort down a familiar path of contractors threatening not to bid or more calls for a split buy.
The senior Pentagon official overseeing the program says he is willing to address questions from the contractors, but he is sticking by the KC-X draft request for proposals (RFP). “It’s a crystal-clear draft RFP, and we’ll consider making changes to it on the basis of comments we receive,” says acquisition czar Ashton Carter. But “consider” is the operative word. “We’re going to try to preserve the attribute of clarity in the final RFP so that it’s clear to everyone next summer, when a contract is awarded, why it was awarded,” he says. The chances that some of the wholesale changes requested by both camps will be heeded are remote. But posturing on both sides continues, although it seems less likely to be as influential now as in the past.
A delay is the most obvious impact of the wrangling. The final RFP was due out this week. Last week, Carter stopped short of committing to a release date. Contractors suggest it could be out as late as January.
Carter says the Pentagon intends to entertain all of the questions prior to moving ahead with the formal competition. But he responded to one criticism of the September draft RFP made by the Northrop Grumman/EADS team by stating that the source selection is intentionally “much less subjective” than the one that governed the 2007-08 competition because of suggestions from the Government Accountability Office, which audited the process after Boeing protested its loss with a 767-based design. This prompted a termination of the $1.5-billion contract with Northrop Grumman/EADS.
Northrop Grumman officials have complained that the 373 pass/fail requirements outlined for qualification in the competition equally weigh less important items—such as water flow in sinks and toilets—with critical capabilities—such as fuel offload rates. The cost-shootout approach is also perceived as favoring the smaller tanker, presumably a Boeing 767-based solution (though Boeing has not announced a design).
Despite multiple failed attempts at leasing or buying a new refueler, Carter defends the current draft as a product of those experiences. “We do know very well what aircraft the war­fighter wants,” he says. “We have had a learning curve, and now we are able to be more specific” about requirements.
His statements come on the heels of opposing criticisms from lawmakers and the Northrop Grumman/EADS team. Carter and his Pentagon colleagues managing the contest are walking a familiar fine line. On one hand, conducting a competition remains a paramount concern ever since John McCain (R-Ariz.), the influential ranking member of the Senate Armed Services Committee, derailed an attempt in 2002 by the Air Force to lease 767 tankers from Boeing at a bloated cost. But competition can come from the only other maker of commercial widebodies, Airbus.
This leaves the Pentagon in the tough position of having to appease the companies enough to keep them interested. However, program officials must also manage the duel in such a way that the winner is clear and the source-selection cannot be nullified by another protest. “Key people in the Pentagon who worked on this [in the past] never quite understood this was their fault and a part of it was sloppy documentation,” says David Berteau, senior adviser at the Center for Strategic and International Studies (CSIS).
Carter acknowledges that complaints about the draft RFP from both sides were “destined.” Camps of both teams use the same verbiage to describe their various attempts to influence the final RFP. They say they are trying to “level the playing field,” though it is arguable that some of the complaints are designed to intentionally weight it in their favor.
McCain’s concerns about the recent KC-X competition were included in an Oct. 29 letter to Defense Secretary Robert Gates. His supporters say his worries are not intended to favor one team, but Boeing advocates say the senator remains skeptical about the company since his lease investigation. McCain’s current worries center around a lack of subjectivity in the source-selection process. He also questions how the last competition, including more than 800 requirements, was culled to 373 “threshold requirements.” And the senator wonders why the Pentagon’s method for determining ownership cost lacks some commonly used data in cost assessments. McCain questions why this process would “not favor mostly smaller airframes.”

Sixteen other lawmakers—all but one from districts standing to gain work if a Boeing 767 powered by Pratt & Whitney engines wins—held a press conference in November on Capitol Hill. The lawmakers, led by Sen. Sam Brownback (R-Kan.), demanded that the Defense Dept. alter the final RFP to include a penalty against the Northrop Grumman/EADS bid because of the interim ruling from the World Trade Organization (WTO) against the European Union for unfairly subsidizing Airbus commercial products. Rep. Jay Inslee (D-Wash.) proposes using the Commerce Dept.’s countervailing duty process, which would be used to calculate a per-unit penalty. Rep. Norm Dicks (D-Wash.) says it could be as high as $5 million per aircraft.
“Defense procurement must be consistent with our trade policies,” says Brownback. Moreover, Rep. Todd Tiahrt (R‑Kan.) says that if the Pentagon continues to be inconsistent with the U.S. Trade Representative’s approach, the case for continuing support for WTO crumbles. “If our request fails, and our requests are ignored once again by the Air Force, then I will file paperwork to withdraw from the WTO,” Tiahrt says. “If we are not going to use their judgments and we are not going to apply it, then we may as well withdraw from the whole organization.” This group of lawmakers, though vocal, lacks the influence of a relevant committee chairman or ranking member. Their cries may amount to little action.
One industry source warns that the U.S. would violate the WTO agreement if it proactively applied a penalty, referred to as “self-help,” before the dispute is resolved.
Though final rulings from the WTO do not often deviate from the interim findings, Carter maintains that applying a penalty in the KC-X source-selection would be premature. The U.S. Trade Representative’s office referred questions on the matter to the Pentagon.
Another industry observer who deals with Boeing on non-tanker business, agrees. “It would be awkward and inappropriate to penalize Northrop Grumman/EADS on something that is not final.”
The gripes from both camps raise questions about what is to come. Complaints in past competitions have been influential, and it remains to be seen whether this will be the case in the forthcoming duel.
During the last full competition in 2007-08, Northrop Grumman influenced, through a threat of not bidding, the final RFP. The Air Force added a fifth evaluation factor, the Integrated Fleet Air Refueling Assessment, that helped the company to win.
The Defense Dept. attempted another KC-X contest in the fall of 2008. Boeing threatened not to bid if the company was not given more time to craft a design, prompting Gates to halt the competition, calling for a “cooling-off” period.
The Pentagon is essentially hostage to its overarching need for a competition, according to CSIS’s Berteau. “The government will, it seems to me, have to do whatever it needs to do in order to sustain a competitive environment,” he says.
During both past attempts, lawmakers at various times pushed a split-buy in which both contractors would have at least some work. While this is an option for the Northrop Grumman team, Boeing appears to view this outcome as a defeat. But the split-buy option is sure to crop up again as a fallback plan if the final RFP riles one of the bidders. The Pentagon, however, firmly rejects this option.
Both bidders have a tarnished history in this saga. The EU is on the cusp of an adverse WTO ruling for subsidies to Airbus, and Boeing has the long and tainted history of its overpriced lease arrangement crafted in the aviation downturn following the 9/11 terrorist attacks.
However, the act of conducting a contest still appears to be paramount for the Pentagon. And, unfortunately, there will not be two squeaky-clean competitors. “There is no way to make this competition perfect,” says the industry observer. “But, if you want to run a competition, you have to run the competition you have, not the competition you want.”

Northrop Threatens To Drop Tanker Bid

Northrop Grumman has told Pentagon acquisition chief Ash Carter that it will not submit a bid for the KC-X tanker program unless the government makes significant changes to the final request for proposal. The company made its declaration in a letter today from incoming Northrop CEO Wes Bush to Carter: “As a result, I must regrettably inform you that, absent a responsive set of changes in the final RFP, Northrop Grumman has determined that it cannot submit a bid to the department for the KC-X program.”
Bush left the door to a vibrant competition somewhat open, adding that the company hopes the Pentagon “will elect to modify its approach to this procurement in a way that will enable us to offer our product for your consideration.”
Company spokesman Randy Belote confirmed the letter’s contents. Belote said the company is “convinced that they want a prefer smaller tanker with less multirole which puts our tanker at a terrible disadvantage.”
A veteran aerospace analyst was more direct. “This is the stupidest contest you’ve ever seen,” said Joel Johnson, a consultant for various international clients, including Northrop Grumman. “It’s a Boeing RFP. When air forces have been able to decide on merit and price, every one of them has gone with the KC-45 clone.”
Belote said the company does expect “the final RFP will take our concerns into account.”
Northrop has considered this approach for some time and it was known as “the nuclear option.” The company decided to go nuclear after a Nov. 4 letter to the Pentagon in which the company first said it might not be able to bid under the terms of the current RFP elicited a negative response.
“The process has not allowed us to actually have a dialogue,” Belote said.