The U.S. Air Force's draft request for proposals (RFP) for the KC-135 refueler replacement program worth up to $35 billion lacks some key elements in assessing the risk and past performance of proposals, according to industry officials.

These officials also object to the use of a fixed-price incentive contracting structure for the development phase as well as a firm fixed price for the low-rate initial production (LRIP) aircraft. Northrop Grumman/EADS North America's contract awarded in 2008 — and terminated later that year — was structured as a cost-plus arrangement. LRIP aircraft were to be purchased under a fixed-price incentive deal with the full-rate production aircraft purchased depending on the annual budget allotment of the Pentagon.

The planned contract structure puts more risk on the contractor, and the firm-fixed price strategy is one supported by Ashton Carter, the Pentagon's acquisition chief. However, in this case, there is a 20 percent variance in the requirements as stated during the 2007 competition and in the current draft RFP, says an industry official, who agreed to speak on background because of the sensitive nature of the program.

"Basically, I have to sign up to an 18-year fixed-price contract and I have some variability in requirements of about 20 percent. That makes me a little nervous," this official says.

"How does a CEO take a program like this — where it is an 18-year commitment to its board — and say, 'We aren't sure we are going to make any money on this thing?'" said another industry official.

Also, the heavy emphasis on cost could drive the competitors to lowball the development price and expect to make a profit in the production phase. It is likely that at some point funding will fluctuate for the Pentagon (because Congress appropriates annually), and once a requirement change is made or the Pentagon cannot hold its end of the funding commitment, the deal will be renegotiated.

Pentagon officials have repeatedly declined to answer questions about the draft RFP and are instead referring reporters to comments made during the press conferences in September announcing the document's release (Aerospace DAILY, Sept. 25).

Price has emerged as a paramount factor in this competition, and Northrop Grumman has raised concerns about the release of its cost data to Boeing after winning the contract in 2008. Pentagon officials have repeatedly said that "DOD has examined this claim and found both that this disclosure was in accordance with regulation and, more importantly, that it created no competitive disadvantage because the data in question are inaccurate, outdated and not germane to this source-selection strategy" (Aerospace DAILY, Sept. 30).

However, the Pentagon apparently sought Boeing's permission to release its pricing data. In a Sept. 23, 2009, letter, Jeh Charles Johnson, general counsel of the Defense Dept., informed Stephen Yslas, general counsel of Northrop, that "We also actually sought Boeing's permission to release this information, and Boeing declined." In the letter, Johnson also says the Pentagon did not see a competitive disadvantage for Northrop, and that the pricing was irrelevant in a competition taking place roughly two years later.

The forthcoming competition, as laid out in the draft RFP, includes 373 mandatory requirements that each contractor must address to compete, a tenfold increase from the original 37 threshold requirements, these industry officials say.

A change from the previous RFP in 2007 is that the Air Force will not conduct a formal risk assessment. In 2007, a company's risk score was to compose 25 percent of its proposal, with past performance accounting for another 25 percent. In the latest draft RFP, risk is not formally evaluated (meaning the Air Force doesn't reserve the right to add schedule or cost to an unrealistic proposal) and past performance is a simple pass/fail assessment.

The refueling boom envelope in 2007 was supposed to be four times as large as that of the KC-135, while now the Air Force wants a boom that is twice as capable.

Photo: Northrop Grumman