Northrop Grumman KC-45: Cost and Price Comparison

Highlighting reasons the U.S. Air Force selected the KC-45 Tanker as best for our men and women in uniform.

WASHINGTON: The U.S. Air Force found Northrop Grumman Corporation's bid to build the next generation of aerial refueling tankers superior to Boeing's in four of the five most important selection criteria. Despite this fact, the losing bidder wants the Government Accountability Office to overturn the Air Force decision to award the contract to Northrop Grumman even though the Air Force conducted what even Boeing described as a fair, open and transparent bidding process. Here is another reason Northrop Grumman won, drawn from a list of facts included in a redacted version of a protected Air Force selection document.

Cost and Price Comparison
Federal contracting law requires the government agency awarding a contract to provide taxpayers with the best value possible. While agencies are allowed to award contracts to a company whose bid price is higher, it must be clear that the more expensive bidder offers a service of significantly higher value.

While Boeing claims Northrop Grumman's bid is more expensive, the Air Force concluded that Northrop Grumman's development and production costs were lower and the total life cycle cost (which includes development, procurement, military construction, and operations and support) for each system would be about the same. Accordingly, the Northrop Grumman KC-45 offered significantly more capability for the same cost, thus providing the Air Force and taxpayer with the best value.

The Air Force places a high priority on whether the contractor can stick to the price it submits in its bid. For system development, the Air Force assigned Northrop Grumman a "low" risk of exceeding its cost estimates but gave Boeing a "moderate" risk rating.

According to the Air Force source selection document, a "Moderate cost/price risk" is assigned "Only if some difference exists between the offeror's proposed cost/price and the government's probable cost/price that is not reasonably explained" in the offeror's proposal.

Indeed, the Air Force analysis of Boeing's proposal concluded that "Some difference exists between" Boeing's estimate and its own, and also that the difference between the two estimates was "Not reasonably explained."

In contrast, the Air Force assigned Northrop Grumman a "low risk" designation because "Little difference ... exists between the offeror's proposed cost/price and the government's probable cost/price. Northrop Grumman is more advantageous -- Boeing has higher cost/price risk on a larger program."

For production, the Air Force "Estimated Northrop Grumman as ... less than Boeing in developmental and initial production ... substantially less funds required to develop and buy the first 68 aircraft." The cost for each KC-45 was significantly less expensive than each KC-767.

The Air Force concluded that "Northrop Grumman's more advantageous cost/price proposal was a discriminator" in deciding Northrop Grumman's bid was superior to Boeing's. Overall, when combined with the KC-45's superior capability, the Northrop Grumman proposal provided the Air Force with the best value.

About the KC-45
The KC-45 Tanker aircraft will be assembled in Mobile, Ala., and the KC-45 team will employ 48,000 American workers at 230 U.S. companies in 49 states. It will be built by a world-class industrial team led by Northrop Grumman, and includes EADS North America, General Electric Aviation and Sargent Fletcher.

Northrop Grumman Corporation is a global defense and technology company whose 120,000 employees provide innovative systems, products, and solutions in information and services, electronics, aerospace and shipbuilding to government and commercial customers worldwide.