USAF evaluated rivals' bids on price

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The US Air Force's evaluation in the second round of competition elevated a single criterion - price - over all other factors. Even judging the competitors by their past performance, a standard and sometimes controversial metric, was reduced in significance.

Ashton Carter, under secretary of defense for acquisition, technology and logistics, confirms the KC-X evaluation considered past performance only as one of 372 pass/fail requirements, which also included the amount of water that must be stowed in the aircraft's lavatory.

The goal of the highly prescriptive KC-X evaluation process seemed focused on driving any potentially subjective criteria out of the system, reducing the decision to a mathematical formula as much as possible.

"The unsuccessful offerer has a right to protest as part of the process," Deputy Secretary of Defense William Lynn told reporters on 24 February. "We think we've established a clear and open and transparent process. We think we've executed on that, and it will not yield grounds for a protest."

Despite EADS North America Ralph Crosby's confidence preceding the contract award, it was Boeing's price that Carter declared a "clear winner" in the competition. The difference between the two bids was at least greater than 1%, or about $330 million, Carter says.

A key factor in the review by EADS officials is likely to be how the USAF adjusted the original price proposals submitted by both companies.

As part of the unique formula that was devised for the KC-X competition, the air force established three criteria - an operational assessment, the cost of fuel consumed over 40 years and construction of new hangars - to adjust each bid to determine a "total evaluated price".

A week before contract award, Crosby acknowledged that the KC-45 faced a shortfall of at least $1 billion on lifecycle fuel burn and construction costs compared with Boeing's smaller aircraft. But Crosby said he believed the KC-45 could still be the cheaper aircraft in the competition.

Since the KC-45 was based on the Airbus A330, which boasts a higher production rate than the 767, EADS's manufacturing costs could be more efficient, Crosby says. And since EADS was offering a nearly off-the-shelf tanker, he adds, the KC-45 could be priced more aggressively. In the previous competition, which EADS won, the price of the KC-45 was nearly identical to the KC-767.

In the subsequent round, EADS had shed Northrop Grumman as the prime contractor, which is estimated to have wiped at least 10% off the cost of the proposal with almost no decrease in value.