Behind the Protest

Nov. 9, 2015: It would have been tough for Boeing to explain to its shareholders why it didn’t protest losing the Long-Range Strike Bomber contract—potentially an $80 billion chunk of work—especially when there was a reasonable chance the Government Accountability Office might sustain the complaint, and Boeing captured the $44 billion KC-46 contract after its protest threw that program back open for competition.

“We have to take a shot,” an industry official said simply.

Those familiar with the particulars behind the protest said Boeing believes the Air Force didn’t give the company and its partner Lockheed Martin sufficient credit for producing large numbers of airliners, F/A-18 fighters, and F-35 fighters in recent years, for technology advances that gave them an edge in large-scale, lower-cost production techniques, or their grand system integration chops.

The Air Force was instead relying on cost and schedule experience with previous bomber programs, Boeing complained.

“The totality of expertise” in aircraft manufacturing should have been a deciding factor, one observer familiar with the protest said. “Northrop Grumman builds a few UAVs a year … how can they be as efficient” as Boeing and Lockheed, who have extensive, hot production lines

Moreover, Boeing believes Northrop Grumman’s price offer was too good to be true, considering that Northrop Grumman doesn’t have Boeing’s extensive worldwide supplier network and volume benefits.

Boeing itself underbid the KC-46, and is now more than $500 million in the red, after taxes, on that program. But while Boeing is responsible for any overages on the tanker, the bomber contract is cost-plus, meaning that while Northrop Grumman will lose incentive fees if it fails to deliver, the Air Force will have to cover overages.

One source suggested that both Boeing and Northrop Grumman bid “far, far below” USAF’s stated developmental cost of $21.4 billion for LRS-B development. Overall, “The Air Force did not adequately assess risk, and the capabilities of the offerors,” one official said.

For its part, the Air Force has emphasized in recent press briefings that it is required by law to use historical data on similar kinds of projects to estimate costs on the LRS-B. It has also said it intends to produce the LRS-B in small lots of perhaps seven airplanes a year, potentially negating the value of the very large-scale production expertise that Boeing and Lockheed tout.

The protest actually hits at Northrop Grumman’s bottom line because it is enjoined from working on the project until the protest is resolved, but must still keep its design team together with the meter running.

The Air Force was not immediately able to say if there are any potential penalties on Boeing if the protest is not upheld.