HASC Tanker Hearing Today

Today’s public hearing is now finished.

First two GAO reps will speak:
Mr. Daniel Gordon Deputy General Counsel GAO
Mr. Michael Golden Managing Associate General Counsel Procurement Law Division GAO

Then one DoD rep will speak:
Mr. John Young, Under Secretary of Defense for Acquisition, Technology and Logistics

At our documents site we have posted the hearing read-ahead memo.

DoD Tanker Recompete Brief Analysis

Now that the DoD KC-X tanker contract recompete press conference is over, it is time to review and analyze yesterday's events. (Note: The briefing transcript is on our documents site so you can do your own analysis. Or, you can view the brief on the right. )

What has changed in the Tanker War:
1) By deciding to recompete the contract, DoD has voided the KC-30 team's contract that was awarded after the first flawed competition. As John Young said," There is no contract award right now. And there won't be a contract award."

2) Sue Payton has been relieved as the Source Selection Authority (SSA) for the tanker contract and that task now falls to John Young. Sec. Gates was asked directly why is Ms. Payton staying on her job in Air Force acquisitions and if he had confidence in her. He answered that , "Yes I have confidence in the acquisitions team." Not a ringing endorsement but it probably means she will not be asked to resign.

3) In addition to a new SSA, a new Source Selection Advisory Committee (SSAC) will be appointed.

4) A new contract decision timeline has been established. Sec Gates believes that DoD can, "award a contract by December." But, Mr Young was more cautious stating that the timeline could slip and, "That is the best case to make the source selection decision by the end of the year."

What stays the same in the Tanker War:
1) The competition is not being completely reopend. The current RFP will be used as the starting point and amended as needed. Young stated, "We have a valid requirements document that has not been called into question."

2) There will be no new provisions for the WTO dispute or for industrial base implications.

Statements that give us cause for concern:
1) Acting Sec. of the Air Force Mike Donley's statement that "...the Air Force successfully defended itself against over a hundred protest allegation, some of which were overlapping. And based on this overall performance and my understanding of the transparent and collaborative way in which this process was conducted, I would not conclude that the underlying Air Force acquisition system is somehow fatally flawed."

Mr. Donley is taking false comfort in a GAO report that was scathing in its criticism of Air Force procurement. Also, how was it "transparent and collaborative" if the GAO said the Air Force "conducted misleading and unequal discussions with Boeing…."

2) Acting Sec. Donley's statement that, "GAO's conclusions show that even in a large, complex procurement with considerable staff resources and oversight, work accomplished by our contracting personnel, our warfighters and our engineers is not always adequately prepared to withstand the detailed audits and the legal challenges that we can now expect."

Gee, we though the GAO conclusions showed that, “[The Air Force’s] selection of Northrop Grumman’s proposal as reflecting the best value to the government was undermined by a number of prejudicial errors..." And, that the GAO found, "a number of significant errors in the Air Force’s evaluation under the key system requirements and product support subfactors of the mission capability evaluation factor and in its cost evaluation..."

But now, thanks to Mr. Donley we see that SSAC and SSA were not screwed up at all; they were only not adequately prepared to withstand such a mean legal challenge. We have a feeling a couple of Senators may have to talk some sense into him during his confirmation hearing.

3) Mr. Young's statement that "... we have some confidence in what the bidders propose for the cost to develop and build the aircraft. Many of our systems, from fighter aircraft to ships to weapons, are over their 15-, 20-, 25-year life used in ways we didn't anticipate. We still have to consider life cycle costs in developing a weapons system, because that is roughly a third of the Defense budget. But we don't want to overweigh -- you know, we want to balance the known cost to develop and build the tanker with the estimated life cycle cost, and we will do our very best in that to estimate that life cycle cost and include the realistic price of fuel, although it's very difficult to understand, you know, how fuel may vary from here going forward."

This only confirms our suspicions that, even though prohibited by the RFP to base selection decisions on costs other than most probable life cycle costs (MPLCC), DoD and the Air Force are heavily biased toward a tanker with low SDD costs. This favors the subsidised A330 based tanker with its lower SDD costs. Mr. Young's statement also seems like a cop out. He almost appears to be saying that determining MPLCC is just too hard; its not like its only been around in one form or another since the late 18th Century.

Tanker War Blog's Final Analysis:
As Rep. Norm Dicks has stated, the expedited rebid is, "...better than a split buy or other options, but the devil will be in the details." Right now not enough details are known on how the grading criteria or the RFP will be changed. Also, it seems as though no one in DoD other than Sec. Gates really understands the ramifications of the GAO findings other than it made Congress angry.

Will this expedited recompete be an honest attempt to get the right tanker for the mission, or simply a method to revalidate a decision and process DoD has not truly accepted as significantly flawed? It is too early to tell.

DoD to Recompete Tanker Contract

Congressional notifications of DoD's way ahead on the Air Force tanker contract are ongoing.

First indications are that DoD has decided to have an "Expedited Recompete"; no details as of yet. Sounds like Option A that we mentioned last week.

More to come.......

DoD to Announce Tanker Contract Future

DoD has officially announced the tanker decision press conference.

Secretary of Defense Robert M. Gates will conduct a press briefing at 1 p.m. EDT in the DoD Briefing Room, Pentagon 2E579.

This gives him enough time to host an honor cordon to welcome Minister of Government and Justice of Panama Daniel Delgado to the Pentagon today at 2:00 PM.

Congressional notifications are ongoing. First indications are that DoD has decided to have an "Expedited Recompete"; no details as of yet. Sounds like Option A that we mentioned last week.

The Pentagon Channel will cover the DoD press conference proceedings live.

Also, CNN broadcast the initial tanker contract announcement in February through its Live Video site, so there is a good chance they will do so again.

We will continue to keep you informed as we get more details.

Past 4-Star Transport/Tanker Boss Comments

Human Events yesterday published an extremely important article by Retired General John Handy, former Commander of both TRANSCOM and Air Mobility Command (AMC). In it Gen. Handy provides compelling rationale on why the KC-135 replacement program should be based on small to medium size aircraft.

Like most of us General Handy was "a bit surprised" by the decision to buy the KC-30 and even more shocked by the "unusually harsh language used by the Government Accountability Office" in its recommendation that the contract be rebid. He says that the harsh GAO language:

...compels me to do something I've never done before: to speak out publicly. I am not employed by either Boeing or Northrop-Grumman. But the service I've devoted most of my life to appears to need a bit of help.

Somewhere in the acquisition process, it is obvious to me that someone lost sight of the requirement. Based on what the GAO decided, it's up to people such as myself to remind everyone of the warfighter requirement for a modern air refueling tanker aircraft.

General Handy lays out what he believes are the three major requirements for the KC-X tanker:

1) The ability to deploy and bed down in sufficient numbers in order to accomplish all assigned tasks.
2) The tanker must be survivable and provide the crew with superior situational awareness.
3) The ability to integrate in the current defense transportation system. That means 463L compatible pallets; floor loaded on a freighter capable floor all compatible with the current modern airlift fleet.

General Handy concludes that:

Now, if you look at these rather simple requirements and look at the previous offerings from industry, you might agree with me that the KC-767 more closely meets these needs than the competition. If that's what the warfighters need, that's what they should get.

We could not agree more with General Handy's assessment that Air Force procurement lost sight of the requirement. In our view, the pressure to have a competition was so great that the Air Force was forced to make changes to the RFP to accommodate an larger aircraft that they did not want. These changes, both pre and post final RFP, tilted the metrics of the competition toward a larger tanker.

It almost seems as though the goal of the SSA became having a competition, and not getting the best tanker for the mission. (As we have previously pointed out, the pressure that led to this was constant and irresistible.)

Competition is a good thing. But, when it becomes the ends, and not the means, thereby causing one to lose sight of the requirement; well, the whole procurement process is worthless.

Tanker Decision: Predictably Irrational

Air Force procurement actions have a lot of us asking, "Why?"

As in, why did the Air Force select the KC-30 in a process that the Government Accountability Office ruled was conducted in a most biased and seemingly irrational way.

In our continuing search for answers, we believe we may have found something in the book Predictably Irrational by Dr. Dan Ariely.

When people make decisions they think they're in control, making rational choices, but as Dr. Ariely shows, often they are not. In an entertaining and surprising way, he unmasks the subtle but powerful tricks that our minds play on us.

We think that Dr. Ariely's research on the Power of FREE relates strongly to the tanker contract selection. FREE is a magical price, one that people don't evaluate in the same way as other prices. It is guaranteed to make us do strange things and go crazy with desire. FREE tricks our minds into thinking there is no downside, even though there may be hidden costs or the product is not what we really need. Here is a link to a video on the Power of FREE. Also, here is an article that explores the allure of something for nothing.

A variation on the Power of FREE is where people will agree to a bad deal because it appears to offer something extra for free. If you remember back to that fateful February 29th, during the KC-X contract announcement press conference when General Lichte had this to say about the reason the Air Force chose the bigger Northrop/EADS tanker over Boeing's tanker:

Well, I -- from a warfighter's perspective, and I know the team looked at a whole number of things, but from my perspective, I can sum it up in one word: more.

More passengers, more cargo, more fuel to offload, more patients that we can carry...

Many of the statements out of the Air Force since have echoed this more is better mantra. It almost seems as though the Air Force fell for the old marketing trick of advertising a product as getting 20% more free? In this case it would be closer to 18% more fuel hauling capacity free. (Remember this was before the Air Force figured out that the KC-30 was more expensive.)

We have begun to wonder if we should similarly advertise to increase our blog readership. So, we had TAnchorman, who has just returned from vacation, make us a new marketing slogan and label (on right) to put on Tanker War Blog. We are not sold on the idea, but we bet at least a couple of people in DoD will be.

They should not be too hard on themselves though. We wrote Dr. Ariely to ask about his thoughts on our More for Free Tanker Theory. He said that the situation was, "very sad but we all fall for this trap....".

Rumors on what DoD will do next

As Congress is out of session, and DoD takes its sweet time deciding what to do next on the tanker issue, we offer our readers the following rumors as to the options now on Under Secretary of Defense for Acquisition, Technology and Logistics, John Young's desk:

A. Request Boeing and NG/EADS submit immediate new best and final offers under the original or only slightly revised RFP.

B. Have the Air Force make significant revisions to the RFP and rebid the contract. (Since this will take at least 1 year lead time to re-open the Joint Joint Capabilities Integration Development System process, this option seems unlikely.)

C. Execute both the Boeing and NG/EADS contract proposals as submitted under a potential "co-production" or "Leader/Follower" production strategy. (The details and the split in this split-buy were not clear.)

D. Fund "competitive prototyping" with each contractor under parallel System Development and Demonstration (SDD) over 18-month period with a winner take all fly-off for production much like the JSF. (This might be problematic if both competitors are funded at the same level since Boeing's proposal probably has higher SDD costs.)

Our sources in the Pentagon have been drastically attrited during the tanker war, but we have reason to believe in those we still have. So, we would ascribe that the above options are at least 80% accurate.

We have taken note that trying to force the current contract through against the GAO recommendation is not rumored to be on the table.