Northrop Grumman,
Reuters and several other media outlets are reporting, this afternoon, on a Boeing corporation filing before the Government Accountability Office concerning word from the Air Force that it had slightly miscalculated what is known as the Most Probable Life Cycle Cost of Boeing's tanker design and the Northrop Grumman KC-45.
While Boeing, in its filing, suggests that this is indicative of greater problems with the Air Force evaluation, the facts suggest otherwise. When the Air Force released its source selection documentation on why it picked the Northrop Grumman KC-45 over the Boeing KC-767, the Air Force noted that the KC-45 offered significant capability advantages, better combat performance in detailed simulations, a contractor in which the Service had more confidence, and cost advantages.
Key cost advantages of the Northrop Grumman proposal included:
– Lower SDD (System Design and Development) cost and risk. NG's aircraft was ready for conversion, while Boeing's paper airplane needed to be built, tested, and certified. Accordingly, Boeing's development costs were higher and ran a higher risk of encountering significant additional costs.
– Significantly lower unit cost ($10-15m lower per aircraft according to press reports).
The 25 year most probable life cycle cost (MPLCC) was a dead heat: $108.010B for the KC-45 versus $108.044B for the KC-767, a difference of $34m or 3/100 of a percent. The lower development and acquisition costs of the KC-45 were balanced out by the slightly lower operating costs of the less capable KC-767.
Perfection, while an admirable goal, is rarely achieved in human affairs and particularly not in something as complex as the KC-X evaluation.
During the protest review, the Air Force discovered five errors in the MPLCC computation, which in turn caused a slight adjustment in the operating costs of the two aircraft.
For all intents and purposes, the MPLCC of both aircraft remain the same.
The slight adjustment does not affect the outcome because SDD cost/risk was the critical element in the Factor IV evaluation. As the Air Force stated, “Because of their lower risk in SDD, Northrop Grumman's proposal was more advantageous to the Government.”
In addition, the Air Force noted, even if Boeing's SDD cost/risk was reduced, it “still would have decided to award to Northrop Grumman given their higher mission capability (especially the superior aerial refueling and airlift capabilities), past performance, and IFARA [Integrated Fleet Aerial Refueling Assessment] evaluation.”
The Government Accounting Office, which was provided with all the information, will soon rule on Boeing's protest of the KC-45 contract award. The minor errors should have no impact on that ruling.
