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Alternate Fighter Engine (AFE)

The Pratt and Whitney F100 engine, which became operational in 1974, has powered the F-15 and F-16 aircraft since their inception. The Air Force had contractual problems with Pratt and Whitney on an earlier fighter engine program. P&W had been the sole producer of the AF's jet fighter engines during the 1970's, and they had become non-responsive to the needs of the Air Force.

Due to concerns over the performance of the engine and the availability of spare parts, the Air Force sought to develop alternate fighter engines. The Air Force hoped, through competition, to obtain engines with improved operability, safety, durability, and supportability at reduced life-cycle costs, and to establish a broader industrial base for production of fighter engines.

In fiscal year 1979, the Congress funded development of alternate fighter engines by both General Electric and Pratt and Whitney. The result was a competition between General Electric's FllO-GE-100, which is a derivative of the engine used on the B-lB bomber, and the Pratt and Whitney FlOO-PW-220, which is an improved version of the existing F100 engine.

During the 1970s, Aeronautical Systems Division (ASD) underwent a major management reform under Lieutenant General James T. Stewart. Under General Stewart's long tenure (1970-76) -- the longest in ASD history -- the Division developed the "super SPO" by combining, e.g., all engine programs in one organization. This resulted in more efficient and effective strategies for developing and procuring aircraft subsystems. The new Propulsion SPO, stage managed what became known as the "great engine war," which sought to reduce acquisition costs while increasing performance and reliability by bringing more competition between the nation's chief jet engine manufacturers.

The historic model was that people would submit proposals, essentially design proposals, and one of those would be selected to develop and produce the weapon system. Usually during the development phase, the cost would almost double. Then in production, they would continue to grow. There is a sole source, basically a monopoly supplier, from the time that the program starts through the design. A monopoly supplier has very little incentive to lower their cost. In fact, the data show that when competition has been used to lower production cost -- competition in development to lower production cost -- it has a very significant impact on the cost of the system when it's in production.

There is a lot of data, in the jet engine example of the so-called "great engine war," in which competition was introduced when the sole supplier started to behave improperly. In this case, it was actually the low reliability of the engine that caused competition to be introduced. As a result, reliability went up dramatically, and, cost went down dramatically.

The Air Force decided to hold a competition between Pratt & Whitney (Pratt) and General Electric (GE) for the $10 billion market for F15 and F16 fighter jet engines needed for the six-year period spanning 1985-90. Air Force Secretary Verne Orr told Congress in 1983 that "we are going to have competition" with "two fine manufacturers who are going to be at each other's throats." Although officially called the Fighter Engine Competition, this engine buy became known as "The Great Engine War" due to the competitive and political firestorm ignited on Capitol Hill, in the Pentagon and within industry.

The Alternate Fighter Engine (AFE) program successfully applied competition to a DoD weapon system acquisition program. The competition as conducted on the AFE was one of the Air Force's first attempts to comply with the Competition in Contracting Act of 1984, by continuing competition into the production phase of a program. There was a move to enlarge the industrial base, improve reliability of engines, and reduce overall life cycle costs.

A relatively small-scale development program for a similar GE prototype allowed the Air Force to have a competition between the two engines in 1983. GE's highly reliable F110 engine, based on the F101 design, was selected for the F-16C/D fighter aircraft by the US Air Force in 1984, initiating "The Great Engine War," an intense, competition between GE and rival Pratt & Whitney.

In 1984 the Air Force conducted extensive life-cycle costs analyses cover costs to acquire and support the 2,000 engines over 20 years. The analyses were performed on a variety of contract options. The Air Force's analysis showed that the General Electric and the Pratt and Whitney offers were essentially equal at the 100 percent award level. However, on a split award basis, General Electric's costs were lower than Pratt and Whitney's. This difference resulted principally from one factor - General Electric offered more favorable warranty terms under a split award. The General Electric price on warranty coverage was slightly less than Pratt and Whitney's on a 100 percent award basis. However, as Pratt and Whitney's share of the award moved away from 100 percent, the cost of its warranties increased up to three times. In contrast, General Electric's warranty costs actually decreased.

After Secretary Orr made his award decision in February 1984, the Air Force proclaimed the competition a great success, as it yielded $2 billion in competitive savings, generated the "classical benefits of competition" and provided the "competitive leverage to drive the prices down as we have." Orr testified to Congress that it was "a great competition, probably the finest that I've experienced in the 3 years in the Air Force." Secretary Orr's decision only covered the first year of the six years subject to competition. The Secretary's decision was for the procurement of the 160 engines to be purchased in fiscal year 1985. In that decision, the Air Force split the award between the two contractors, with General Electric to produce 75 percent of the engines.

For the subsequent years of the Fighter Engine Competition, Secretary Orr promised that "we will be competing again," with "new offerings," new assessments and new decisions each year. Each year, the Air Force requested improvements and received new offers from the competitors. Pratt offered improvements in terms and conditions from its BAFO each year - in some years offering more generous improvements than others - with the hope of obtaining a larger share of the work each year.

The primary benefits were better responsiveness from the contractor, more reliable engines, better and cheaper warranties, lower engine cost, and a broader industrial base. The following issues were also identified: less use of available production capacity, cutbacks resulting in less surge capability, and difficulty providing proposals with numerous scenario and quantity requirements. Life-cycle cost, warranty, and parts considerations came to guide the Air Force's strategy.

The Tactical Fighter Roadmap- to 1993 was submitted to the Congress in February 1984. The Roadmap included a three-phased plan for enhancing engine capabilities. Phase one was a near-term program to improve reliability and maintainability of F-lSC/D/E and F-lGC/D aircraft engines. This would be done through procurement of F-lOO-PW-220 engines from Pratt Whitney and/or FllO-GE100 engines from General Electric. Phase two was a mid-term program involving a planned competition for higher thrust versions of both engines. These engines would be used in an upgraded version of the F-16 and to extend the capability of the F-15 Phase three was a long-term program to develop an advanced technology engine for the ATF.

In an unusual decision rendered on 19 January 2005, the Armed Services Board of Contract Appeals [ASBCA] reversed a controversial defective pricing decision that it had made in 2004. In United Technologies Corporation, ASBCA Nos. 51410, 53089, 53349, on 27 February 2004, the Board found that Pratt & Whitney had defectively priced a contract for fighter engines. This was the contract that had resulted from "The Great Engine War" between Pratt and General Electric. The decision was controversial because the contracting officer and other Air Force contracting personnel admitted during the trial that they had not looked at Pratt's cost or pricing data. On reconsideration, the same three judges who signed the decision in 2004 decided that the Air Force had not proven that it had relied on the defective cost or pricing data and thus had not proven its entitlement to a price adjustment based on defective pricing. A $300 million false claims case is pending in federal court, and the Board's reversal is likely to affect the outcome of that case.




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