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By Nick Wakeman

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Nick Wakeman

How the Air Force's $55B bomber contract became an LPTA competition

It has been months in the making, but the Government Accountability Office has finally released a public version of its decision to deny Boeing and Lockheed Martin’s protest of the $55 billion Air Force contract for a new bomber.

Northrop Grumman won the contract last October and Boeing and Lockheed, who teamed to compete for the Long Range Strike Bomber filed their protest in early November.

GAO announced its decision denying the protest in February, but a public version of the decision was not released until this week.

The ensuing months between decision and release have been filled with the Air Force determining the public version of the decision as well as negotiations with GAO on what to release. As you look through the decision, you’ll see many, many pages completely blacked out at the Air Force’s request.

Sources indicated to me that the Air Force wanted to collapse the large sections of blacked out content so it wouldn’t be readily apparent how much material had been redacted. But GAO pushed back.

In fact, GAO includes a legend at the top of the decision indicating that redactions marked as [DELETED] indicate the removal of proprietary or source selection sensitive information, while the redactions obscured by black line indicate classified information that the Air Force wanted removed.

Among the information blacked out is the solicitation number and the seven technical factors the Air Force wanted bidders to meet. The Air Force argued that the information needs to remain classified.

Information on the bomber program is apparently a touchy subject for the Air Force, which has steadfastly refused to release the value of Northrop Grumman’s bid. The $55 billion price is based on price estimates prior to the competition.

U.S. Sen. John McCain, chairman of the Senate Armed Services Committee, has been especially vocal with his criticism that the contract is a cost-plus contract and subject to overruns that the government will be on the hook for. He has threatened to withhold funding for the bomber.

To be fair to the Air Force, initial development of the first 21 planes is cost-plus, but once the craft moves into full production of up to 100 planes the contract switches to fixed price.

And speaking of price, it appears from the protest decision that the Air Force ran the procurement for this highly sophisticated aircraft as a lowest price, technically acceptable competition. Yes, LPTA for the bomber that is expected to replace the B-1 and possibly the B-52.

In a footnote, GAO describes how Northrop’s engineering and manufacturing development costs were significantly lower than the Boeing-Lockheed proposal because of investments Northrop had made but did not pass on to the government. What those investments were is redacted from the decision and Northrop declined to comment.

Northrop also had lower labor rates and labor escalation rates. Northrop also declined to comment on how they made their labor rates lower. (You’ll find this information in footnote 4 on page 8 of the decision.)

Because of Northrop’s investments and lower labor rates, the independent government estimates of costs for Northrop’s proposal was lower than the Boeing-Lockheed proposal.

This is significant because both teams were deemed to be technically acceptable.

The solicitation’s selection criteria stipulated that if the higher bid was greater than 103 percent of the lower bid than the lower bid would be deemed best value. The bid by the Boeing-Lockheed team was more than 103 percent so the Air Force picked Northrop.

The argument is that this is best value because why should the Air Force pay a higher price if both proposals were found technically acceptable?

The Boeing-Lockheed protest argued that there were problems with the technical evaluation. In fact, Boeing’s proposal was acceptable with four weaknesses and Northrop’s proposal was acceptable with 10. But GAO rejected that argument saying that the Air Force could show how it followed the criteria in the solicitation.

Because of the heavy redactions in the decision, you can’t get any insight into where those weaknesses in the proposals were found. But in the end, the Air Force felt both were technically acceptable.

And once that happened, it became a price shoot-out.

As GAO said, Northrop’s price “created a near-insurmountable obstacle to Boeing’s proposal achieving best value.”

And unfortunately, because of the heavy redactions, it is hard to get a sense of where the Air Force was placing its priorities and emphasis.

Posted by Nick Wakeman on Oct 26, 2016 at 9:28 AM

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