Now that EADS said it will bid after all for the KC-X contract, questions have been raised about the possibility EADS will offer pricing that is below its costs (or “price-dumping”) to win the contract. Boeing supporters, and Boeing itself, have raised this concern.
On the other side, EADS is focusing on the fact its KC-45 is in production and in flight tests while Boeing’s proposed KC-767 NewGen is a conceptual airplane that is a riskier prospect.
How are these two particular concerns dealt with?
The final Request for Proposal issued by the Air Force shifted its rating methodology from a combination of criteria-and-subjective analysis to a pass-fail approach. There are 372 criteria that EADS and Boeing have to pass; if any of the the criteria fails, the offering is disqualified.
This removes the past performance and risk factors in the second round of the competition (won by then-EADS partner Northrop Grumman) in which Boeing was marked down for its conceptual offering of the KC-767 Advanced Tanker and poor performance related to the KC-767 International program (Japan and Italy), which were and continue to be late and plagued with technical problems.
So how does risk get assessed, not only for the Boeing conceptual KC-767NG but for the EADS KC-45?
There are what are known as “ENs” or Engineering Notifications the Air Force routinely issues when it has questions. Somewhat misnamed for the purpose they have, the ENs aren’t exclusive to engineering questions. It is through this that the Air Force asks any question it has.
EADS “came out of the box” aggressively shooting at Boeing’s KC-767 NewGen, noting the airplane is conceptual and asserting this equates to a higher risk than its KC-45. The ENs, we understand, will be the likely method the Air Forces to assess the risk of the KC-767NG.
Boeing is in the position of having to convince the Air Force that all elements of its proposed airplanes, including the insertion and integration of the 787-style cockpit, development of a KC-10 type of refueling boom, resolving of the Italian KC-767 wing-pod flutter issues (with a new control surface system for the wings, we are told) and all other systems can be done within the fixed price bid and timelines specified in the RFP.
Through the questions posed in the ENs and the responses thereto, the USAF will assess whether Boeing’s answers are acceptable, whether further clarification is required or whether the answers fail to satisfy.
As we understand it, it is through this system that the risk factors included in the Round 2 competition for which Boeing got marked down, and which are absent in this Round 3 RFP, can be assessed. Failure to satisfy might result in a “Fail” of a Pass-Fail criteria.
Boeing has been through this little process before with its KC-767 Advanced Tanker. Although there are distinct differences between the KC-767AT and the KC-767NG, the concepts are quite similar. This may or may not be a good thing, since the USAF previously assigned higher risk to the conceptual KC-767AT as part of its evaluation process in Round 2 which resulted in the award to Northrop Grumman, then partnered with EADS.
The same approach is true for the KC-45 systems. Although EADS correctly points out that its airplane is in production and in testing and has transferred fuel on many occasions, it is also equally true the airplane is about 18 months late, it has yet to be delivered and it certainly isn’t operational.
The risk factors of a “greenfield” assembly line in Mobile (AL), with new hires who will require training, also may reasonably be expected to be included in ENs. These questions, of course, would have been dealt with in Round 2.
The ENs may also be used for evaluating whether the price offered by EADS is reasonable and avoids price-dumping. Since this is a fixed-price contract bid, the USAF is clearly interested in a realistic low-bid pricing and not one that results from price-dumping.
Parenthetically, the USAF is certainly cognizant that any price offered by EADS that underbids Boeing is going to be subject to Congressional scrutiny. Thus, the Air Force has real, deep incentive to be convinced that no price dumping occurs.
Thus, there appear to be safeguards in the process for supporters of both sides.