KC-X - Boeing Protest
On March 11, 2008 Boeing filed a formal protest regarding the selection by the U.S. Air Force of the Northrop Grumman/European Aeronautic Defence and Space Company KC-30 over the Boeing KC-767 for its KC-X medium-sized tanker program. Boeing concluded from the debriefings following the selection was that the KC-X acquisition process was flawed. Boieng contended that fundamental but often unstated changes were made to the bid requirements and evaluation criteria. These changes, according to Boeing, not only unfairly skewed the results against Boeing; they "penalized the warfighter and the taxpayer by selecting an airplane that did not satisfy the Air Force’s own bid requirements."
Bryan Whitman, deputy assistant secretary for public affairs, said the challenges like the one filed by the Boeing Company are built into the acquisition process to ensure it complies with federal regulations. GAO had 100 days to review the contract award and determine whether the Defense Department followed appropriate processes and procedures, with a decision expected prior to 19 June 2008.
According to Boeing, "the selection process for the KC-X was flawed by countless irregularities. In the evaluation, selection criteria were misapplied, the RFP was disregarded and the requirements of the Federal Acquisition Regulation were not adhered to—resulting in the selection of a much larger, more vulnerable, less capable and ultimately more costly offering. It’s a decision that doesn’t add up; not for the warfighter or the taxpayer."
"Our analysis of the data presented by the Air Force shows that this competition was seriously flawed and resulted in the selection of the wrong airplane for the warfighter," said Mark McGraw, vice president and program manager, Boeing Tanker Programs. "We have fundamental concerns with the Air Force's evaluation, and we are exercising our right under the process for a GAO review of the decision to ensure that the process by which America's next refueling tanker is selected is fair and results in the best choice for the U.S. warfighters and taxpayers."
"Boeing offered an aircraft that provided the best value and performance for the stated mission at the lowest risk and lowest life cycle cost," said McGraw. "We did bring our A-game to this competition. Regrettably, irregularities in the process resulted in an inconsistent and prejudicial application of procurement practices and the selection of a higher-risk, higher-cost airplane that's less suitable for the mission as defined by the Air Force's own Request For Proposal. We are only asking that the rules of fair competition be followed."
Following an analysis of data presented at an 07 March 2008 debriefing on the decision, Boeing concluded that what began as an effort by the Air Force to run a fair, open and transparent competition evolved into a process replete with irregularities. These irregularities placed Boeing at a competitive disadvantage throughout this competition and even penalized Boeing for offering a commercial-derivative airplane with lower costs and risks and greater protection for troops.
"It is clear that the original mission for these tankers -- that is, a medium-sized tanker where cargo and passenger transport was a secondary consideration -- became lost in the process, and the Air Force ended up with an oversized tanker," McGraw said. "As the requirements were changed to accommodate the bigger, less capable Airbus plane, evaluators arbitrarily discounted the significant strengths of the KC-767, compromising on operational capabilities, including the ability to refuel a more versatile array of aircraft such as the V-22 and even the survivability of the tanker during the most dangerous missions it will encounter."
Boeing charged that the contract award and subsequent reports ignored the fact that Boeing and the Northrop/EADS team were assigned identical ratings across all five evaluation factors: 1) Mission Capability, 2) Risk, 3) Past Performance, 4) Cost/Price and 5) Integrated Fleet Aerial Refueling Assessment. Boeing argued that an objective review of the data as measured against the Request for Proposal would show that Boeing had the better offering in terms of Most Probable Life Cycle Costs, lower risk and better capability. Boeing asked the GAO to examine several factors in the competition that it believed were fundamentally flawed:
Factor 1 - MISSION CAPABILITY
In analyzing Mission Capability, the most important evaluation factor, Boeing received the highest possible rating, meeting or exceeding all Key Performance Parameters.Boeing scored "Blue (Exceptional) and Low Risk" in this area -- the highest possible rating in the most critical "factor" in this competition. Among other measurements, the Air Force identified positive “discriminators” as well as “weaknesses.” While the KC-30 had 30 discriminators and five weaknesses, among them its aerial refueling boom, the KC-767 had 98 discriminators and only one weakness. The Air Force assessed Boeing as meeting or exceeding all Key Performance Parameters (thresholds and objectives). The Air Force evaluated Boeing as having significantly more strengths (discriminators) than the competitor.
AERIAL REFUELING CAPABILITY. The requirements for aerial refueling identified six key thresholds and five key objectives. The KC-767 met all of these thresholds and objectives with key strengths including the ability to refuel the V-22, the ability to offload multiple fuel types on the same mission, a better refueling receptacle, and a superior Aerial Refueling Operator Station. By comparison, the KC-30 failed to meet three of the key objectives—and had multiple weaknesses associated with its refueling boom.
FUEL OFFLOAD CAPABILITY. The KC-767 met or exceeded every requirement for offloading fuel. In November of 2007, the Air Force identified the KC-767’s “Fuel Offload vs. Range” as a “Strength.” Still, some have pointed to the KC-30’s larger fuel capacity as an advantage. However, historical data since the Vietnam War demonstrate that the average amount of fuel offloaded per mission is just 60,000 lbs.—only 25% of what the oversized KC-30 can carry. In other words, the taxpayer is paying for unused, excess capacity — capacity that brings with it excess weight and significantly higher operating costs. Under real-world conditions based on real-world mission data, the KC-767 is far more fuel and cost efficient.
AIRLIFT CAPABILITY. As made clear in the Air Force Statement of Objectives for this competition, air refueling is the primary mission of the KC-X tanker. The Secretary of the Air Force reiterated this point unequivocally when he said, “We do not want to buy a cargo airplane that tanks, we also do not want to buy a passenger airplane that tanks. We want to buy a tanker.” However, Boeing states that, in addition to being the superior tanker, the KC-767 provides 69% greater Airlift Efficiency than the tanker it’s meant to replace, a particular “Strength” as noted by the Air Force in 2007. Furthermore, the floor of the KC-767 is a true cargo deck and much stronger than the floor of the KC-30—so while the KC-30 has more cargo volume, the KC-767 can carry approximately the same cargo weight and transport it more efficiently.
SURVIVABILITY. To be survivable, tanker aircraft must contain systems to identify and mitigate threats and protect the crew in the event of attack. Aircraft size is also a factor; the bigger the aircraft, the bigger the target, the more vulnerable it is. In this critical area, the Air Force found the KC-767 to have five times as many “Strengths” as the KC-30. During the Air Force debrief following the selection of Northrop/EADS' Airbus A330 derivative over Boeing's 767 derivative, the Boeing team discovered the KC-767 outranked the KC-30 in the critical survivability category. The KC-767 achieved a total score of 24 positive discriminators -- including 11 described as major -- while the KC-30 scored five, none of which were major.
Boeing said the U.S. Air Force's decision to award a contract for the next aerial refueling airplane to the team of Northrop Grumman and the European Aeronautic Defence and Space Company (EADS) was at odds with the fact that the Northrop/EADS team's KC-30 is less survivable and more vulnerable to attack than the Boeing KC-767 Advanced Tanker. The Air Force evaluation cited the Boeing offering to be more advantageous in the critical area of survivability. The evaluators found the KC-767 tanker had almost five times as many survivability discriminators as its competitor.
Major survivability discriminators for the Boeing KC-767 included:
- More robust surface-to-air missile defense systems
- Cockpit displays that improve situational awareness to enable flight crews to better see and assess the threat environment
- Better Electro-Magnetic Pulse (EMP) hardening -- the KC-767 is better able to operate in an EMP environment compared with the KC-30
- Automatic route planning/rerouting and steering cues to the flight crew to avoid threats once they are detected
- Better armor-protection features for the flight crew and critical aircraft systems
- Better fuel-tank-explosion protection features.
Boeing's KC-767 Advanced Tanker will be equipped with the latest and most reliable integrated defensive equipment to protect the aircraft and crew by avoiding, defeating or surviving threats, resulting in tanker survivability superior to all current Air Force tankers as well as the Northrop/EADS KC-30. The Boeing KC-767 also includes a comprehensive set of capabilities that enables unrestricted operations while providing maximum protection for the tanker crew.
Speaking at the Aerial Refueling Systems Advisory Group (ARSAG) Conference in Orlando, Fla., former U.S. Air Force Chief of Staff and retired Gen. Ronald Fogleman stressed that survivability greatly enhances the operational utility of a tanker. "When I saw the Air Force's assessment of both candidate aircraft in the survivability area, I was struck by the fact that they clearly saw the KC-767 as a more survivable tanker," Fogleman told the ARSAG audience in his role as a consultant to Boeing's tanker effort. "To be survivable, tanker aircraft must contain systems to identify and defeat threats, provide improved situational awareness to the aircrew to avoid threat areas, and protect the crew in the event of attack. The KC-767 has a superior survivability rating and will have greater operational utility to the joint commander and provide better protection to aircrews that must face real-world threats."
Factor 2 - RISK
In assessing Risk, Boeing and its competitor received equal scores. Both proposal's risk was rated "Low." And yet Boeing is an integrated company with one management team and 75 years of tanker-building experience. Furthermore, the KC-767 will be built on an existing production line that has made 767s for years. Boeingn points to the high risk associated with its evolving multi-country, multi-facility, multi-build approach as contrasted with Boeing's integrated approach to design, build, and certification in existing facilities with experienced personnel. The KC-30 will be built by a combination of a U.S. company and a European one, with two management teams on two continents, with no experience building tankers together—utilizing numerous production facilities across Europe and in an American plant that doesn’t yet exist.
Northrop Grumman contends that Boeing's proposed KC-767AT tanker and refueling boom were never built, flown or tested. The first Northrop Grumman KC-45A tanker aircraft was built in July 2007 and flown in September 2007. The Northrop Grumman KC-45A Aerial Refueling Boom System has completed 73 test flights totaling more than 200 flight hours. The boom completed the first in-flight fuel transfer on Feb. 29, 2008 passing 2,000 pounds of fuel to a Portuguese Air Force F-16 combat aircraft. The Northrop Grumman KC-45A is based upon the Royal Australian Air Force KC-30B Multirole Tanker -- which has been built, flown, and is undergoing flight tests. It will be delivered on schedule to the Royal Australian Air Force in early 2009.
Factor 3 - PAST PERFORMANCE
Past Performance was rated “Satisfactory Confidence” for both Boeing and Northrop Grumman/EADS, despite the disparity of experience between the two in building tankers and military derivatives of commercial aircraft. Older and outdated Contractor Performance Assessment Ratings were used for Boeing while KC-X evaluators ignored or failed to adequately account for numerous troubled programs from its competitor (some examples include the Australian tanker, the A400M Airlifter, and E-2D SDD). Boeing noted that press reports indicate that some of the most relevant programs for Airbus (the KC-30 for Australia and the A-400M) are both significantly over cost and behind schedule. Additionally, Boeing has certified and delivered to Japan two of the most advanced tanker aircraft in existence, a critical achievement that received insignificant credit. Boeing contended that in evaluating Past Performance, the Air Force ignored the fact that Boeing -- with 75 years of success in producing tankers -- was the only company in the world that has produced a commercial-derivative tanker equipped with an operational aerial-refueling boom. Rather than consider recent performance assessments that should have enhanced Boeing's position, Boeing argued that the Air Force focused on relatively insignificant details on "somewhat relevant" Northrop/EADS programs to the disadvantage of Boeing's experience.
Factor 4 - COST
The RFP made clear that the Most Probable Life Cycle Cost (MPLCC) was the key Cost/Price metric for source selection. The MPLCC not only includes the cost of acquisition; it includes the cost of operation and maintenance. The Air Force described the cost visibility information Boeing provided as "unprecedented" and rated Boeing's MPLCC cost "Reasonable," "Balanced," and meeting "Realism" criteria -- all the highest ratings a competitor can receive. In its evaluation, the Air Force discounted the weight of the MPLCC and inflated Boeing’s costs by billions of dollars, even though Boeing’s proposed cost data was in full compliance with the Federal Acquisition Regulation. Because of the way the Air Force treated Boeing's cost/price data, Boeing believed that the company was effectively denied its right to compete with a commercial-derivative product, contrary not only to the RFP but also to federal statute and regulation. The Air Force refused to accept Boeing's Federal Acquisition Regulation-compliant cost/price information, developed over 50 years of building commercial aircraft, and instead treated the company's airframe cost/price information as if it were a military-defense product. Boeing stated that this flawed decision deny the government the manufacturing benefits of Boeing's unique in-line production capability, subjecting the Air Force to higher risk, and also resulted in a distortion of the price at which Boeing actually offered to produce tankers.
Boeing contends that the U.S. government piled on $5.2 billion in added costs to our KC-X tanker proposal but only boosted the Northrop-Airbus proposal $772 million. The company said that this example of disparate treatment was about as good as any to explain why we’re protesting the $35 billion air tanker contract. Reuters reporter Andrea Shalal-Esa fleshed out the differences between the two competing proposals. As Shalal-Esa observed: "The Air Force’s evaluation and adjustments to the two bids…are at the heart of Boeing’s contract protest filed March 11 with the nonpartisan Government Accountability Office."
In protest documents Boeing filed with the GAO, Boeing said the government unfairly increased the cost of the 767-based tanker. The government cited higher risk associated with the development and production of the Boeing tanker, as well as a disagreement about anticipated repair costs, which all led to evaluators unfairly assigning us a much higher cost than we could ever have imagined. The same evaluators, on the other hand lowered Northrop-Airbus estimated operation and support costs by $1.4 billion. They lowered the operational costs of an airplane that is larger than our 767, burns 24% more fuel, requires more support and parking space and proposes a high-risk, itinerant and intercontinental production plan. In total, Boeing contends that the the Northrop-Airbus tanker life-cycle costs will cost the U.S. government $49 billion more than the more efficient Boeing tanker over 40 years.
Boeing believed that the evaluation clearly favored Northrop and was “plagued by unreasonable cost assessments, disparate treatment, misleading discussions, and a fundamental failure to follow the evaluation criteria.” According to Shalal-Esa, among costs added to the Northrop bid included $333 million to beef up defensive equipment and the projected life cycle cost of Northrop’s proposal to $108.01 billion. That figure includes $68.3 billion to operate and support the new flying fuel stations over the next few decades. But it keeps the “most probable life-cycle cost” for Northrop’s bid ever so slightly below our $108.04 billion bid. Loren Thompson, a defense analyst at the Lexington Institute, said “It appears that the Air Force’s pricing methodology was stacked fairly heavily against Boeing’s bid."
As recognized by the Air Force itself in 2002, the significantly bigger A-330 would demand a greater infrastructure investment with dramatically lower operational effectiveness. Because of its more efficient size, the KC-767 is deployable to more airfields around the globe without the costly infrastructure upgrades the KC-30 would require.
On 17 March 2008 Boeing reported that the U.S. Air Force likely would pay up to $30 billion more in fuel bills over 40 years to operate a fleet of 179 Airbus A330-200 aerial refueling tankers, compared to a similar number of tankers based on the Boeing 767-200ER. This assessment was based on a Conklin & de Decker Aviation Information study, funded by Boeing, that calculated the Air Force's cost with oil at $100 per barrel and $125 per barrel. Oil prices hit a record high in early March 2008 above $110 a barrel, and many analysts expect prices to continue climbing. Conklin & de Decker, an independent aviation research company, recently recalculated fuel price costs for the Boeing 767-200ER and the Airbus A330-200, popular commercial twin-aisle aircraft that are being converted to military aerial refueling tankers. They fly about the same distance, but the larger, heavier A330 is less fuel efficient than the 767-200ER. As a result, the A330-200 consumes 24 percent more fuel per trip than the 767-200ER. The study also factored in estimated costs of refining, transportation, storage, handling and fueling the aircraft. It concluded the estimated price per gallon at $3.11 with oil costing $100 per barrel would cost the Air Force about $25 billion dollar more over the 40-year service life of 179 Airbus A330-200 tankers, and $29.8 billion more with oil at $125 a barrel.
Factor 5 -- Integrated Assessment
The model used by the Air Force to judge tanker "fleet effectiveness" was developed and is maintained by Northrop Grumman. The mission scenarios and operational constraints to be used with the model issued in the draft RFP to judge tanker "fleet effectiveness" were based upon the 2005 Air Mobility Command "Mobility Capabilities Study" (MCS). Before and after the RFP release, changes to the model's parameters occurred so as to allow a "greater variety of aircraft to be considered" -- in essence to allow larger aircraft to compete. However the Air Force promised that it would tie the numerical output of the model back to real-world constraints by weighing "insights and observations." According to Boeing, the inherent complexities of the model made its results inconsistent and un-repeatable and its overall operational relevance questionable.
The KC-X Request for Proposal (RFP) sought to replace aging KC-135s, a medium-sized tanker. A future program, KC-Z, would aim to replace larger KC-10 tankers. Boeing noted that, using ground rules in the KC-X Request for Proposal, nearly twice as many KC-767s can be based on a parking ramp compared to the competitor's oversized aircraft. Those additional KC-767s will provide more critical fuel to receiver aircraft closer to the fight while requiring fewer bases to support tanker operations.
During the KC-X acquisition process, Boeing stated that it was led to believe that its 767 was the appropriate platform to offer, since it appeared to answer precisely the Air Force’s requirements. Yet the KC-30 is much larger than the KC-767 and even 27% larger than the KC-10. Boeing contends that this excess capacity sacrificed fundamental Air Force requirements of deployability and survivability. Boeing stated that flaws in this procurement resulted in a significant gap between the aircraft the Air Force originally set out to procure -- a medium-sized tanker to replace the KC-135, as stated in the RFP -- and the much larger Airbus A330-based tanker it ultimately selected. To Boeing it was clear that frequent and often unstated changes during the course of the competition -- including manipulation of evaluation criteria and application of unstated and unsupported priorities among the key system requirements -- resulted in selection of an aircraft that was radically different from that sought by the Air Force and inferior to the Boeing 767 tanker offering.
Northrop Grumman contends that the size of the proposed tanker aircraft was not dictated by the Air Force nor was size an established criteria -- each contractor was free to propose the best solution and platform to meet Air Force warfighter requirements. Both contractors had ample opportunity in the protracted acquisition and source selection process to propose the best aerial refueling capability to meet the warfighter's requirements.
Other Issues
Jobs Job creation was not a part of the evaluation criteria, in accordance with federal law. The Northrop Grumman KC-45A tanker program does not transfer any jobs from the United States to France or any other foreign country. Assembly and militarization of the Northrop Grumman KC-45A tanker will take place in Mobile, Ala., resulting in the creation of 1,500 jobs in the United States. The Northrop Grumman KC-45A U.S. supplier base includes 230 companies in 49 states. Northrop Grumman claims that its KC-45A tanker will support more than 25,000 direct and indirect jobs in the United States -- a conservative estimate based upon the U.S. Department of Commerce aerospace industry jobs projection formula. Using more recent data from suppliers and applying the Labor Department's formula for projecting aerospace jobs at the state and regional level, Northrop Grumman claims that the KC-45A will employ approximately 48,000 direct and indirect jobs nationwide.
Repayable Loans / WTO Dispute Issue The U.S. Department of Defense ruled that the disputes involving Boeing and Airbus currently being adjudicated by the World Trade Organization were not relevant to the U.S. Air Force's KC-X Tanker competition.
Industrial Base Northrop Grumman contends that the Northrop Grumman KC-45A tanker program will create a new aerospace manufacturing corridor in the southeastern United States, and helps return competitiveness to the U.S. aerospace industry.
Foreign Content Northrop Grumman notes that all modern jetliners are built from a global supplier base, and the two entrants in the KC-45A competition are no exception. Boeing's proposed tanker includes parts manufactured in Japan, United Kingdom, Canada and Italy. Northrop Grumman tanker includes parts built in the United Kingdom, Germany, Spain and France -- countries exempt under the Buy America Law. The Northrop Grumman KC-45A will include approximately 60 percent U.S. content. There are numerous examples of transatlantic cooperation on vital U.S. military programs. Foreign suppliers currently play essential roles in the F-35 Joint Strike Fighter, the VH-71 Presidential Helicopter and the C-27J Joint Cargo Aircraft program. No sensitive military technology will be exported to Europe. For the KC-45A program, a commercial A330 jetliner will be assembled by American workers in EADS's facility in Mobile. The aircraft will then undergo military conversion in an adjacent Northrop Grumman facility. All of the KC-45A's critical military technology will be added by an American company, Northrop Grumman, in America, in Mobile, Ala.
