For those of us who might remember the long and arduous road the Air Force took to get the contract awarded, and the promises made by Air Force and DoD leadership at the time.

USAF Releases Boeing From Future Cost-Growth Liability On KC-46A Tanker. Inside Defense (1/28, Sherman) reports behind a paywall that the US Air Force has “released Boeing from future cost-growth liability on the KC-46A tanker, altering the fundamental terms of a 2011 contract that capped government costs at $4.9 billion and forced the defense contractor to pay out-of-hide for remedial work that so far totals $5.5 billion – a move that comes as Boeing saddles the Air Force with a new major milestone delay.” According to Inside Defense, “federal auditors revealed these and other new developments in a report on the $43.8 billion KC-46A program.”

 

 Nothing surprises me any more about this continuing debacle. Thanks for the update, H2H.

For comparison, see:  https://en.m.wikipedia.org/wiki/Airbus_A330_MRTT

See also : https://www.gao.gov/products/gao-22-104530 

GAO-22-104530 Published: Jan 27, 2022. Publicly Released: Jan 27, 2022.“KC-46 Tanker:Air Force Needs to Mature Critical Technologies in New Aerial Refueling System Design”

According to the GAO report:

Quote

In February 2011, the Air Force awarded a contract to Boeing to modify the design of a commercial aircraft—the Boeing 767—into a military aerial refueling tanker, the KC-46. However, several critical deficiencies with the refueling system have delayed the completion of the development portion of this program. Critical deficiencies are shortfalls that could cause death, severe injury, or illness, or otherwise cause loss or damage to the aircraft. Under the original contract, Boeing was required to deliver 18 KC-46 tankers in the final production configuration by August 2017, but these critical deficiencies have prevented Boeing from doing so, which has limited the KC-46’s refueling capacity to date. Specifically, the National Defense Authorization Act for Fiscal Year 2021 generally prohibited the Air Force from retiring any additional KC-135s and required the Air Force to maintain at least 26 KC-10s through fiscal year 2023. Furthermore, the Air Force is evaluating the viability of a contracted aerial refueling program to supplement the Air Force’s tanker fleet by supporting training missions. The Navy has been using contracted aerial refueling services to support its training needs for about 20 years.

*     *     *

In October 2021, Air Force officials said they plan to assume financial responsibility for the new RVS design without ensuring the program takes key steps to mature the system’s critical technologies. In April 2020, at least 2 years after the identification of the critical deficiencies, the Air Force and Boeing signed a memorandum of agreement that settled the path forward to design a new RVS. However, it also stipulated the Air Force would be financially responsible for any further design changes to the RVS after completing the preliminary design review for the system. According to DOD guidance, the preliminary design review ensures that there is technical confidence that the capability need can be satisfied within cost and schedule goals and that risks have been identified and mitigation plans established. This arrangement, effectively, reversed the original terms of the firm-fixed price contract that aimed to hold Boeing fully responsible for delivering a system that would work in any lighting conditions.

Boeing won the fixed-price incentive (firm target) contract in 2011 after a FAR Part 15 source selection, in which the competitors submitted detailed technical proposals that described their proposed "approach" to design and development. They won it after winning a protest against award to Northrop Grumman and Airbus.

https://www.gao.gov/assets/gao-08-991t.pdf

https://www.gao.gov/assets/b-311344%2Cb-311344.10%2Cb-311344.11%2Cb-311344.3%2Cb-311344.4%2Cb-311344..pdf

https://www.nytimes.com/2011/02/25/business/25tanker.html#:~:text=In a surprise twist to,company that builds Airbus planes.

Boeing won a follow-on contract last year. https://www.flightglobal.com/fixed-wing/boeing-wins-21bn-for-15-more-kc-46a-tankers-points-to-battle-communications-role/142077.article#:~:text=Boeing has won its second,Boeing says on 21 January.

I hope this result shows people that (1) "technical proposals" that describe a distant, imagined future are not, and never have been, reliable bases for contractor selection and contract formation, and that (2) gimmicky contractual incentive devices simply do not work and never have.

But it won't show people. I guess nothing ever will.

 

1 hour ago, Vern Edwards said:

I hope this result shows people that (1) "technical proposals" that describe a distant, imagined future are not, and never have been, reliable bases for contractor selection and contract formation, and that (2) gimmicky contractual incentive devices simply do not work and never have.

But it won't show people. I guess nothing ever will.

 

This story shows me that Boeing's people were the smartest people in the room, despite what DoD and USAF leadership said at the time about their team(s).

Boeing's strategy of "investing" in new programs by intentionally submitting a price that it knows is less than the expected cost of performance, and then riding out the initial losses--expecting to make its investment back plus a return on that investment in the long-term, continues to work for the company. The company apparently has outstanding financial strategists.

Kudos to them.

19 minutes ago, here_2_help said:

Boeing's strategy of "investing" in new programs by intentionally submitting a price that it knows is less than the expected cost of performance, and then riding out the initial losses--expecting to make its investment back plus a return on that investment in the long-term, continues to work for the company.

Sounds like buying-in when put this way, but what is ‘artificially high’? 🤔

3 hours ago, Vern Edwards said:

I hope this result shows people that (1) "technical proposals" that describe a distant, imagined future are not, and never have been, reliable bases for contractor selection and contract formation, and that (2) gimmicky contractual incentive devices simply do not work and never have.

But it won't show people. I guess nothing ever will.

Why not add in a bogus RFP requirement from 1973.  From the RFP.

Quote

Each proposer was required to submit a proposal encompassing the entire SRM project for three increments.  Cost proposals were requested for Increments 1 and 2 which covered all efforts required for the total design, development, test and evaluation (DDT&E) of the SRM, including six development flights, and all efforts necessary to manufacture, test, and deliver new and refurbished SRM's for 54 flights (108 SRM's)  Increment 3 cost estimates were to comprise all efforts necessary to manufacture, test, and deliver new and refurbished SRM's for 385 flights (770 SRM's).

Add the 12, 108, and 770 together and you have 890 solid rocket motors for 444 Space Shuttle flights over the Shuttles planned 11 years.  

From 1981 through 2011 there were 135 Space Shuttle flights that required 270 solid rocket motors.  I'll stop here

1 hour ago, Jamaal Valentine said:

Sounds like buying-in when put this way, but what is ‘artificially high’? 🤔

It's not buying-in when there is no intention of getting well through change orders. Instead, the company (obviously) plans to recoup its initial losses through follow-on work. It's a great strategy and it destroys most competitors, because only the very biggest contractors can absorb the initial losses.

2 hours ago, here_2_help said:

This story shows me that Boeing's people were the smartest people in the room, despite what DoD and USAF leadership said at the time about their team(s).

Boeing's strategy of "investing" in new programs by intentionally submitting a price that it knows is less than the expected cost of performance, and then riding out the initial losses--expecting to make its investment back plus a return on that investment in the long-term, continues to work for the company. The company apparently has outstanding financial strategists.

Kudos to them.

Does it work for Boeing though? KC-46, 737-MAX, 787 Dreamliner...each plagued programs that are not deserving of kudos...

And if you want to default to financial performance as the standard (versus delivering good product) consider the following: Starting in Feb 2011 with the KC-46 award Boeing was valued at $72.30 and today is valued at $206.79 (a 186% percent increase) whereas Airbus was valued at $7.13 in Feb 2011 and is valued today at $32.07 (a 350% increase). Compared to it's chief competitor in the defense marketplace, Lockheed Martin, they still lag (Lockheed experienced a 373% increase over that same period, from $81.81 to $387.15)...Boeing has even lagged the market as the S&P 500 experienced a 249% increase over that same period.

Just because one party got something wrong, doesn't mean the other party got it right - I hope for all our sakes we do learn from the KC-46 source selection and do better as we acquire the next tanker.

The re-competition after the Boeing protest resulted in the DoD switching from BV Tradeoff to essentially LPTA, which was a setup for Boeing, with its smaller plane.

The DoD/USAF announced to the media and general public that the re-competition would be a “fixed price” contract. The TV media apparently didn’t either know or understand that it was actually a “fixed price incentive” award for the first part of the program. Not publicized was that the government’s cost share between the target price and ceiling price ended up being 60% of the overrun - over $500 million dollars.

Edit:  Apparently, the cost growth is more than 100% of the original 2011 award…

”Boeing on Jan. 27 [2021] reported another $275 million charge to its KC-46 program, pushing the total cost overruns it is responsible for to more than $5 billion in the past six years—more than the initial contract award for the tanker.”  Source: https://www.airforcemag.com/boeings-kc-46-cost-overruns-surpass-5-billion/

Edited February 3, 20223 yr by joel hoffman

In 1926, Congress enacted the Air Corps Act of 1926, 44 Stat. 780. The Act created the Army Air Corps and authorized the Army and Navy to buy aircraft through the use of design competitions instead of sealed bidding. The story of that development is told in Holley, Jr., Unites States Army in World War II, Special Studies, Buying Aircraft: Materiel Procurement for the Army Air Forces (U.S. Army, 1964).

Here is how the author describes the military services' experience with design competitions, on pages 113-114.:

Quote

In practice the idea of design competition proved unworkable, for it yielded nothing more tangible than a paper promise to perform. When circular proposals went out inviting bids on a certain type of aircraft [i.e., RFPs], a whole flood of replies returned to Wright Field [now Wright-Patterson AFB]. Inexperienced designers were more than willing to dream up aircraft alleged to possess the most superlative flying qualities and performance capabilities—as yet unattained. Until a physical sample or experimental airplane could be built around the winning design there was no telling whether the evaluation board had picked a leader or a lemon. If the chanced to choose a lemon, a great deal of money and time had to be spent before the error could be confirmed.

And on pages 139-140:

Quote

After three failures in 1926 and 1927, procurement officers had avoided the use of design competitions until driven to try four more during 1935. Two others in modified form were tried during 1938. Significantly, none of the aircraft used in World War II had its inception in a design competition. In 1935 Air Corps procurement officers once again reached the conclusion of 1927: paper promises to perform were meaningless. The design competition was unworkable.

Peck and Scherer, in The Weapons Acquisition Process: An Economic Analysis (Harvard, 1962), p. 364, the authors say:

Quote

In sum, uncertainty at the design competition stage in a advanced development program is reflected in the difficulty of predicting technical performance values and in subsequent design changes. As we shall see later, this uncertainty problem has often been aggravated by under contractor optimism in design competition proposals. As a result, the design competition has been termed "a competition in optimism and exaggeration" and design proposals have been called "science fiction."

The same could be said for IT program proposals. The same could be said of almost all technical proposal/soundness of approach competitions.

1 hour ago, Vern Edwards said:

In 1926, Congress enacted the Air Corps Act of 1926, 44 Stat. 780. The Act created the Army Air Corps and authorized the Army and Navy to buy aircraft through the use of design competitions instead of sealed bidding. The story of that development is told in Holley, Jr., Unites States Army in World War II, Special Studies, Buying Aircraft: Materiel Procurement for the Army Air Forces (U.S. Army, 1964).

Thanks for sharing this reading recommendation Vern. I found a free download here for anyone else interested in reading it. Based on those excerpts you provided I look forward to it.

I just finished reading the book "Stealth" by Peter Westwick and I can't help but juxtapose the processes used for developing and fielding stealth aircraft to how many approach acquisitions today. I understand the exponential reduction of the radar cross section of an aircraft is a considerably different technological feat than placing a camera on a boom but, to me, that's the point - would it really have cost us that much in time and money to test the remote vision system concept before commiting the future of the tanker fleet to it?

4 hours ago, here_2_help said:

It's not buying-in when there is no intention of getting well through change orders.

Buying-in is a disjunctive rule that also includes expecting to “[r]eceive follow-on contracts at artificially high prices to recover losses incurred on the buy-in contract.” It’s not limited to change orders.

Again, I’m just saying it ‘sounds like’ buying-in. I’m not making an assertion that it actually is buying-in.

4 hours ago, Matthew Fleharty said:

Does it work for Boeing though? KC-46, 737-MAX, 787 Dreamliner...each plagued programs that are not deserving of kudos...

And if you want to default to financial performance as the standard (versus delivering good product) consider the following: Starting in Feb 2011 with the KC-46 award Boeing was valued at $72.30 and today is valued at $206.79 (a 186% percent increase) whereas Airbus was valued at $7.13 in Feb 2011 and is valued today at $32.07 (a 350% increase). Compared to it's chief competitor in the defense marketplace, Lockheed Martin, they still lag (Lockheed experienced a 373% increase over that same period, from $81.81 to $387.15)...Boeing has even lagged the market as the S&P 500 experienced a 249% increase over that same period.

Just because one party got something wrong, doesn't mean the other party got it right - I hope for all our sakes we do learn from the KC-46 source selection and do better as we acquire the next tanker.

Stop your timelines just before the 737-MAX tragedy/debacle/fiasco and rerun your numbers. I think you'll reach a different conclusion.

18 minutes ago, here_2_help said:

Stop your timelines just before the 737-MAX tragedy/debacle/fiasco and rerun your numbers. I think you'll reach a different conclusion.

Why do that when the same focus on the financials strategy is a root cause of the 737 MAX?

17 hours ago, Matthew Fleharty said:

Why do that when the same focus on the financials strategy is a root cause of the 737 MAX?

You're making an assumption based on ... something.

Look, I don't want to argue with you. I'll assert that you don't understand Boeing, especially the interplay between its commercial division and its government division. Let's just leave it at that.

1 hour ago, here_2_help said:

You're making an assumption based on ... something.

Look, I don't want to argue with you. I'll assert that you don't understand Boeing, especially the interplay between its commercial division and its government division. Let's just leave it at that.

If you don't want to argue the issue why make an assertion directed at me and then state to just leave it at that?

Besides, if you re-read my post, my primary exception to your issuance of kudos wasn't the financial performance, but the problems with the program(s) themselves...why laud efforts like the KC-46 when it's been behind schedule and consistently failed to deliver on its performance? I'll assert that you don't understand the bigger picture. Shall we just leave it at that?

@here_2_help @Matthew Fleharty

Read Air Wars: The Global Combat Between Airbus and Boeing (2021), by Scott Hamilton.

H2H, what doesn't Matthew understand about the interplay between Boeing's commercial division and its government division? I'd like to know if I understand.

 

6 hours ago, here_2_help said:

You're making an assumption based on ... something.

Look, I don't want to argue with you. I'll assert that you don't understand Boeing, especially the interplay between its commercial division and its government division. Let's just leave it at that.

I ordered the book: Flying Blind The 737 MAX Tragedy and the Fall of Boeing   by Peter Robison · 2021 for my son-in-law.

There is an excellent overview of Boeing and a 37 page preview of the contents of the book at:

https://books.google.com/books/about/Flying_Blind.html?id=T88LEAAAQBAJ&printsec=frontcover&newbks=1&newbks_redir=0&source=gb_mobile_entity

The book also discusses the History of Boeing and some of its competitors, including McDonnell Douglas. I recommend at least reading both the (expanded) overview and the preview of the book.

(I will read the book when I visit them ASAP.  He is a retired Air Force McDonnell Douglas (now Boeing) C-17 pilot and current United Airlines B-737 and B-737 Max 9 pilot before the grounding and now again.  I haven’t had an opportunity to discuss his current views of the Max 9 with him. He thought it was simply a pilot error problem back at the time it happened.)

1 hour ago, Vern Edwards said:

@here_2_help @Matthew Fleharty

Read Air Wars: The Global Combat Between Airbus and Boeing (2021), by Scott Hamilton.

H2H, what doesn't Matthew understand about the interplay between Boeing's commercial division and its government division? I'd like to know if I understand.

I'm pretty sure, having spoken with company employees, that the commercial division is supposed to generate robust cash flows through commercial margins to be used by the government division to invest in R&D and new program awards.

I like this USNI article from a couple of years ago. It doesn't address my assertion (above) but it does speak to Boeing's strategy, which was working just great before the 737-MAX debacle.

 

13 minutes ago, here_2_help said:

I'm pretty sure, having spoken with company employees, that the commercial division is supposed to generate robust cash flows through commercial margins to be used by the government division to invest in R&D and new program awards.

I like this USNI article from a couple of years ago. It doesn't address my assertion (above) but it does speak to Boeing's strategy, which was working just great before the 737-MAX debacle.

 

H2H, You might change your mind after reading only the expanded overview and first 37 pages of the book that I referenced above.  I can’t quote from the book but it won’t take a tremendous amount of time to get a glimpse of some of the problems - many stemming from the late 1990’s merger  with McDonnell Douglas. 

54 minutes ago, here_2_help said:

I like this USNI article from a couple of years ago. It doesn't address my assertion (above) but it does speak to Boeing's strategy, which was working just great before the 737-MAX debacle.

@here_2_helpHave you read Flying Blind? I don't think the 737-MAX was the beginning of Boeing's troubles. It seems to have been the result. The troubles seem to have started with the 1997 merger with McDonnell Douglas.

But what do I know?

3 hours ago, Vern Edwards said:

@here_2_helpHave you read Flying Blind? I don't think the 737-MAX was the beginning of Boeing's troubles. It seems to have been the result. The troubles seem to have started with the 1997 merger with McDonnell Douglas.

But what do I know?

Nope. And you know a lot.

Somehow we've gotten away from my original assertion, which was that Boeing's LPTA "investment" strategy was brilliant and resulted in a number of key program wins--not only KC-46 but also MQ-25. I have no opinion on their engineering acumen, or lack thereof.

12 hours ago, here_2_help said:

Nope. And you know a lot.

Somehow we've gotten away from my original assertion, which was that Boeing's LPTA "investment" strategy was brilliant and resulted in a number of key program wins--not only KC-46 but also MQ-25. I have no opinion on their engineering acumen, or lack thereof.

Even if you don’t read the book, I highly recommend that you at least read the overview and preview of the book. It outlines and explains the author’s view of how the BUSINESS decisions and “win at all costs” management policies of Company leadership and “hordes of cutthroat managers” (brought in after the MD merger in 1997) often overrode the engineering and production side of the business. “Brilliant”? That is debatable.