How to Buy the Tanker

Twice in the past six years the Air Force has tried to buy replacements for its fleet of dangerously old KC-135 air refueling tankers. And twice it has failed. The first failure was because an Air Force official cooked the books for her own financial gain. The second — the now-overturned February 29 decision to buy the too big and too heavy European Airbus 330 tanker — was the result of the Air Force cutting the warfighters out of the decision.

In its June 18 decision to overturn the award, the Government Accountability Office said the Air Force didn’t assess the relative merits of the Boeing and Northrop Grumman/EADS proposals in accordance with the evaluation criteria in the solicitation. Let’s sort out the legal gobbledegook. I have some standing to do so, given that I practiced federal contract law for about three decades and personally tried at least one hundred protest cases like the one Boeing just won.

The government is supposed to buy what it needs, not what it wants. And – in the case of combat systems, among which the tanker is certainly counted – the needs have to be defined by the warfighters. The government’s request for contractor proposals is supposed to define those needs in terms specific enough to enable the contractors to compete by offering the aircraft that best meets the precise need. But the Air Force — bowing to political pressure — crafted a specification so vague that two vastly different aircraft could arguably qualify under it.

To make matters worse, in the final stages of the competition, the Air Force cut the warfighters out of the loop and changed what they had said they needed to keep the European Airbus in the running for the contract. That and the other errors it made — the process issues the GAO used to overturn the decision — provide the lessons on which the Air Force can get it right in the days ahead.

Imagine yourself the head of a company that needed to buy a fleet of heavy-duty pickup trucks. You tell your contracts guys to go out and get a couple of bids. What if they came back to you with two proposals: one for a pretty good pickup and the other for a fleet of tractor-trailers? What if they recommended buying the big rigs because they can do a lot of neat stuff the pickups can’t? You’d fire them and get some people to buy the truck you need.

That’s the biggest failure in the Air Force decision to buy the NG/EADS Airbus. The Air Force failed to set the specifications properly to eliminate aircraft that can’t perform the tanker mission.

The tanker mission is to support the movement of combat and cargo aircraft worldwide. To do so, the tankers have to be able to operate from at least 1600 airfields in many different nations. As I’ve written before, the Air Force uses a computer model called “CMARPS” – the Combined Mating and Ranging Planning System* — to determine the operations characteristics of tanker aircraft. That model is defective, because it cannot account for the different characteristics of airfields, i.e., separately accounting for the strength of pavement on runways and parking ramps and the size of the parking areas.

In deciding to buy the too big and too heavy Airbus, the Air Force “rounded up” its suitability to the airfields. The Air Force’s exercise made it so that if the A-330 could be accommodated on one of the essential factors, it was graded operational on the airfield regardless of whether it could meet the other constraints. The decision would have reduced our air combat capability by reducing substantially the number of airfields the tankers could actually fly from.

In the next round, the Air Force needs to set the requirements clearly in accordance with the warfighters’ needs. And to do that, they must not cut the warfighters out.

The first and most important thing to be done is to ask the warfighters, not the contract people, to reset the requirements. And in every subsequent step they need to be involved, especially in the final decision on which aircraft is to be bought. Both Boeing and NG/EADS should be made aware of the clarified specifications. If the Airbus is too big, or the Boeing is too small, each should have the opportunity to offer a different aircraft. If they cannot, they should not be eligible for the award of the contract.

Part of that exercise will mean specifying the minimum number of specified airfields that the tanker has to operate from and either fixing the CMARPS model to judge all of the characteristics of each airfield or throw the model out and do it by hand, airfield-by-airfield. Unless this is done, the next contract will be as defective as the NG/EADS contract, reducing the number of airfields that actually can be used and reducing our combat and transport capabilities.

The GAO also found that the NG/EADS aircraft was not demonstrably capable of refueling all current Air Force tanker-compatible aircraft. This, again, is a matter for the warfighters to decide, not the contracts people. If the A-330 can’t refuel all the aircraft the combatants commanders need it to, it should be eliminated from consideration for the contract.

Another part of the new competition must be a full and fair evaluation of price and risk. One of the most contentious parts of the price evaluation is the matter of accounting for the subsidies Airbus receives from European governments. These subsidies are the subject of a complaint brought by the United States in a case before the World Trade Organization that is about to be decided. These subsidies, over the years, reportedly amount to more than $35 billion.

As the International Herald Tribune reported on May 28, “The state backers of Airbus — France, Germany, Britain, and Spain — typically financed a third of the development costs of planes through low-cost loans known as launch aid. The United States argues that this aid – more than $15 billion [for one aircraft alone, the A-350] – gave Airbus an unfair advantage over Boeing” in the commercial market. Without these subsidies, Airbus might not have been able to develop the A-330 or offer the tanker version of it.

At the direction of Deputy Defense Secretary Gordon England, the Air Force was going to count some measure of the subsidies to Airbus against the NG/EADS tanker price. In a series of letters (I have copies of two, dated September 8 and September 18, 2006) Sen. John McCain (R-Az) argued that the price effect of subsidies was beyond the authority of the Air Force to consider. That element of the price evaluation was eliminated to appease McCain. It should be reinstated. Free trade is one thing. Granting an unearned price advantage to a foreign competitor for a major defense contract is another.

The risk factor is another judgment that needs to be redone. As I wrote on March 24, the NG/EADS approach — promising to build a new factory, train a new workforce and produce 50 aircraft in five years — is so risky that it strains credulity. Another part of that is something the contract regulations call “past performance.” The Air Force is supposed to assess how a contractor will perform based on similar work it’s done before. The NG/EADS proposal was apparently given an analytically dishonest good “past performance” grade based on work that had nothing to do with tankers. Either you have relevant experience or you don’t.

Will these things “unfairly” benefit Boeing in the next round of competition? It may benefit Boeing, but there’s nothing unfair about it. The first and only consideration here must be to pick the aircraft that is best suited to the mission. Let’s be fair to the warfighter who’s out there flying on fumes, searching for those ever-more-scarce tankers. And let’s be fair to the taxpayer who wants his money spent on the tanker that is best suited to perform the mission, not the most politically correct one.

*In an earlier article, I mistakenly referred to another model, “IFARA”, in this context.