Weighing the Odds in Boeing’s Bomber Protest

By official accounts, the Air Force and the Defense Department dotted every "i" and crossed every "t" during the process of selecting a contractor to build the next-generation long-range strike bomber.

Senior leaders were emphatic in comments leading up to the Oct. 27 award that they were prepared to defend their decision, recognizing the high stakes involved in the estimated $100 billion program to supply as many as 100 bombers.

When they announced their choice of Northrop Grumman’s proposal over the bid submitted by the Boeing-Lockheed Martin team, Air Force officials insisted that an extraordinarily rigorous source selection process had been put in place so it could withstand a protest.

Boeing executives and lawyers were briefed on the selection process Oct. 30 and the company filed a protest Nov. 6 with the Government Accountability Office. A ruling is expected by or before Feb. 16.

In his last press conference as Air Force acquisition executive Nov. 24, William LaPlante said he was “confident” that the program is on the right track.

At this point, how GAO might rule is entirely a guessing game. A reversal of the Defense Department’s decision would be “quite shocking,” said retired Air Force Lt. Gen. Charles R. “CR” Davis, who served as the service’s top military adviser on acquisition programs.

“I have to believe that the Air Force did it right,” Davis said in an interview. “The best minds in the Department of Defense have looked at this, I can guarantee you.”

Air Force and Pentagon officials were determined to avoid a repeat of the tanker imbroglio from 2008, when the original selection of the EADS/Northrop Grumman bid was reversed in 2011 in favor of Boeing. With all that still fresh in senior leaders’ minds, the Air Force did not want to take any chances with the bomber, said Davis. “They pulled out the tanker playbook. We did a tremendous amount of training, education and multiple reviews with outside experts.”

That said, nobody can predict how GAO will assess the evidence provided by both sides.

Industry consultant Loren Thompson — chief operating officer of the Lexington Institute who has close ties to Boeing and Lockheed Martin — suggested that the Air Force may have committed procedural errors that would give Boeing lawyers an opening to successfully challenge the award made to Northrop Grumman. “Although the Air Force contends it ran a rigorous competition that awarded the bomber on the basis of ‘best value,’ Boeing says that in fact it failed to weigh many of the costs associated with producing the plane; and did not seriously compare the capabilities of the rival teams,” Thompson wrote last month in Forbes.com.

Davis speculated that if in fact the Air Force did not assess the costs and the risks of the proposals in strict accordance to the rules set in the original request, that could be grounds for a reversal.

“There would obviously be some very serious repercussions,” Davis said. “However, I find it very hard to believe, knowing all the procedures we put in place, and that the DoD put in place, that they would have allowed that to happen.”

By Thompson’s account, Boeing’s legal team concluded that there were “extensive procedural grounds for challenging the award.”

Davis noted that it is largely irrelevant whether Boeing agreed with the cost data that was used to make the selection. “What matters is whether DoD followed the procedures on what data they would use and how they would use it,” he said. “You can use very bad data but if you tell everybody how you’re going to use the data, then GAO can’t say the service did not adhere to the source selection criteria and procedures.”

If it turns out that the government did not follow the procedures for measuring cost that it specified upfront in the solicitation, one conclusion to draw from that is that the Defense Department should relook at its processes, Davis said. “If a mistake was made, it just tells you something about our process. We’ve made it too difficult and complicated.”

If the GAO ends up siding with Boeing’s claim, the implication is that the Pentagon “no longer can buy what it thinks it should buy. It has to make sure it buys what the legal community thinks it should buy,” Davis said. “That’s going to be a sad state if it comes down to that.”

This particular source selection was scrutinized “from the highest levels on down,” he added. “If there was a numerical error in the cost estimates, we’ll have to see how the GAO interprets it.”

In the bomber contract, the Air Force had the prerogative to choose a design even if was the more expensive option. “That is well within the bounds, as long as the decision to pay more for a specific solution was described in the source selection criteria.”

The Air Force, meanwhile, may have raised untimely questions about its ability to estimate costs when members of Congress in August pointed out inconsistencies in the service’s projections of total bomber-related costs over the next 10 years. Air Force estimates ranged from $33.1 billion to $58.2 billion, and later were revised to $41.7 billion. Air Force Secretary Deborah Lee James called it a “regrettable mistake.”

In defense of the Air Force, said Davis, it is common for life-cycle cost projections of major programs to fluctuate dramatically. In the case of the bomber, “it looks bad from the outside, but nobody truly knows what the life cycle cost is” because estimators from separate organizations use different assumptions.

“This is one thing that the Defense Acquisition University has been asked to take a look at,” said Davis. “It is so difficult to get a standard cost with all the standardized assumptions used by multiple DoD organizations. It’s not surprising these costs are off by large amounts,” he added. “Every program I’ve ever worked on has had to deal with that. This is just another very complex and interpretive process the department uses. And it’s not well defined.”

Topics: Aviation, Defense Contracting, Procurement