Tanking the Taxpayer

Mar 12, 2010 | 5 min read | Print Article

Eight years, three requests for proposals, two criminal convictions, one sustained bid protest and a lot of bad mojo, and the victor in the battle to build the Air Force’s next refueling tanker has finally emerged. Too bad it won by default.

Northrop Grumman made good this week on its threat to walk away from the competition with rival company Boeing to build the tanker, a job with a potential $40 billion payout. Northrop’s CEO said the latest version of the requirements for the plane was so skewed in favor of Boeing that there was no point in his company spending millions to prepare a bid.

The latest proposal was reworked by the Defense Department after an extended Sisyphean drama. The tanker rock first rolled down the hill in 2003 when Congressional investigators discovered collusion between a senior Air Force procurement official and a Boeing executive: Both traded their pin stripes for prison stripes. DOD rewrote the proposal and awarded the contract last year to a consortium formed by Northrop Grumman and the European Aerospace Defense and Space Company, only to overturn the decision when Boeing filed a bid protest sustained by the Government Accountability Office. Both companies to woo lawmakers in both parties. Rep. Norm Dicks (D-WA), the new chairman of the House Defense Appropriation Subcommittee whose district includes Boeing's primary assembly plant, called Northrop's move a good one for U.S. taxpayers. “A tanker based on (Northrop bid’s) A330 airframe, much larger than the Boeing 767, would clearly have been more costly to purchase, operate and maintain,” said Dicks, whose pressure on the Pentagon to extend the proposal’s life-cycle costs from 25 years to 40 was instrumental in promoting Boeing’s plane, since the smaller airframe would consume less fuel.

We disagree. Consolidation in the defense industry means that only two companies can realistically build such a huge plane today. This trend has decreased competition for major defense programs across the board, resulting in increased cost overruns. The tanker’s high price tag ensured a fight to the death between Boeing and Northrop, but now that Northrop has pulled out, Boeing doesn’t face any cost-containing competition.

Several camps have voiced concern that this might mean inflated costs down the line. Top Clinton administration procurement official Jacques S. Gansler pointed out that any changes in the plane’s specifications “will give Boeing justification to say, ‘O.K., but it will cost you more.” Sen. John McCain (R-AZ), closely involved with the tanker deal from the beginning and investigator of the DOD/Boeing scandal, says the contracting process will merit close oversight.

Pentagon officials said they had a contingency plan to work with a single bidder—Air Force Secretary Michael Donley claims existence of “military and legal channels that would protect the taxpayer interest.” But details about these safeguards have yet to surface. Will DOD hold Boeing to the $184 million per-plane baseline of Northrop’s previously winning bid? Will Boeing keep the initial bid low, only to pump up the delivery price years from now as it has in the past with its 767s? Will DOD follow recently passed procurement reforms and make sure the plane undergoes rigorous cost and technology assessments early on, before giving the production go-ahead?

This week’s news answered one question but left many like these hanging. The contest to build the tanker may have ended, but the tanker’s journey is just beginning. We’ll be among those watching its development closely to make sure Boeing lives up to its promises. “It’s important to remember that the American people are the customers, and that we drive a hard bargain,” said Boeing booster Sen. Patty Murray (D-WA). Congress should live up to that challenge as well.