The Choice That Wasn’t Made

So, a funny thing happened when I was watching the live stream of the Pentagon Channel yesterday. I was watching a lovely story about military dentists providing cleanings to Korean children, when all of the sudden a press conference came on to announce the awarding of the Air Force aerial refueling tanker. Imagine my surprise!

Of course, I was actually watching the Pentagon Channel for the press conference (although I did see some fascinating things while I waited), and I did indeed jump up and down when I heard the announcement that Boeing had been awarded the contract. In fact, there is much jubilation and celebration across the region, as it’s clearly great news: 11,000 direct and indirect jobs, many of them current 767 machinists in Everett whose jobs would have been otherwise phased out. Regional leaders made statements, issued press releases and generally rejoiced.

But the most amazing thing to me is not just that Boeing won the contract, which most of us had given up hope for, but why they won it. It wasn’t for any of the reasons we thought.

If you had polled all the aerospace experts and Pentagon watchers in the country, and told them that Boeing was going to win the contract, they would have assumed one of two things:

1) The Air Force decided that it needed the smaller, lighter, more-fuel efficient place because of its mission-related needs
2) The Air Force had decided that it needed to Buy American

But they wouldn’t have guessed that Boeing would have won at all. When the Air Force accidentally sent EADS and Boeing their evaluation data, we learned that the military had scored EADS well above Boeing in many of the “non-mandatory criteria” – those criteria that were in addition to the basic “mandatory criteria” like price and can the plane actually do what it needs to do. So the most incredible thing about this process is that Boeing won despite the fact that they scored lower on the non-mandatory criteria. Or rather, and I think this is really something, Boeing won because the Pentagon was forced to disregard all the non-mandatory criteria…because the Boeing bid was simply so much cheaper.

That’s right. After all the hundreds of hours of work by Boeing to put their bid together and all the money and energy expended by Boeing and its allies to building public support for their efforts, it came down to one of the most basic numbers and everything else was thrown out. The rules are the rules, and they are the rules because the federal government doesn’t want to be spending more tax dollars than necessary if the cheapest bid can get the job done. And the rule is that, if the lower bid is more than 1% lower, then that’s the winner…non-mandatory criteria scores, be damned.

And so finally to the post title, “The Choice That Wasn’t Made.” There was no way that the EADS plane was going to be cheaper. It’s bigger and burns more fuel, which was a choice that EADS made because they thought that bigger would be better. And in many ways, the Pentagon agreed. But EADS knew that they needed to have a low price to win, and they seriously considered bidding to build these planes at less than their cost; the advantage to them would have been that the tanker contract would have served as a loss leader to get them into the US military market and paid for itself down the line with future contracts. But they didn’t go that far. It was a choice they decided not to make. And our region is full of balloons and streamers today because of it.

2 Responses to The Choice That Wasn’t Made

  1. Frank says:

    So the most interesting thing I got from the Seattle Times piece is how they got the price down so low:

    “Another key to Boeing’s winning price tag was the revamp of its 767 line in Everett. Forced to move it to a back bay to make room for a 787 production line, Boeing took the opportunity to remake the line on lean manufacturing principles.”

    There’s a potentially interesting story in there about how Boeing — with its supposedly high labor costs — was able to revamp the production line and come out as the lower cost option.

  2. Ross Macfarlane says:

    Another key factor for Boeing’s win was the much greater fuel efficiency and lower operating cost. The Air Force put a higher value on the long-term cost of the fuel (in part, because of an amendment that Norm Dicks authored that required them to look 40 years out). So not only lower cost to buy, but much lower cost to operate.

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