Factors Involved in the Tanker Contract
Factors Involved in the Tanker Contract
Issues that relate to security are of key concern to all nations (Meyer, 2007). The national security and internal defense are some of the sectors that are allocated lump sums of resources in the budgetary allocation (Meyer, 2007). Such allocations are in line with the perceived importance that the area of defense has. The united states as a country is no stranger to conflict and is one of the country that has been involved in external conflict for long periods of time both in the 20th and 21st century (Meyer, 2007).
The politics involved in the security are some of the most interesting and widely covered happenings in the US press. Financial power is seen to go in line with military power in that countries that have the financial ability tend to develop their military capabilities and the same can be said of countries that have military abilities. National security is an area of key concern and therefore there is lots of secrecy involved in its dealings (Meyer, 2007). The nature of the deals often require utmost confidentiality from the parties involved and therefore many transactions happen in well defined and approved channels.
The military association are developed with time and may be extended to association in other areas since its better to develop good relations with persons with security details that could be detrimental to the country if leaked (Meyer, 2007). The military world has been developing with technological improvements and the military equipments currently being used are characterized by more accuracy and considerable throughput (Verkuil, 2007). These two factors are but a few of the considerations in choosing a partner or a contractor that will help in developing certain aspects of the security system (Verkuil, 2007).
It therefore does not come as a surprise that military procurement procedures and processes have considerable controversy since people have varied views on efficiency and security implications (Verkuil, 2007). This research paper analyses the issues involved in the airforce contract tender to build tankers between Boeing and Northrop Grumman with the aim of highlighting key issues involved in addressing security critical details. Background Boeing KC-767 is one of the military aerial refueling strategy that had been developed by Boeing 767-200 (CBS News, 2008).
The tanker was designated KC-767 after it was selected by the US airforce to replace the KC-135’s. However, in December of 2003, the contract was frozen after corruption allegation on the bidding process were forwarded. The development of the project is said to have cost Boeing over $ 1 Billion as the project was based on the assumption that the US airforce will be the chief consumer. Ever since the freezing of the project the Italian and the Chinese government have each ordered a number of these tankers.
To address the KC-X competition the Boeing offered the 7627-200 Long range freighter which is based on the KC-767 (Online News Hour, 2008). However, the Department of defense selected KC-30 which was developed by Northrop Grumman (CBS News, 2008). The Boeing company on the 11th March 2008 submitted a protest on the decisions made by the airforce, the United States accountability office upheld their protests and in so doing the status of the KC-45A was placed in doubt and therefore the Boeing company was again in position to bid for the contract (CBS News, 2008).
This was no to be since the US government in September 2008 terminated all bids on the KC-X (CBS News, 2008). In March 2002, the US airforce selected Boeing’s KC-767 on the grounds that it had clearly demonstrated the abilities to meet their requirements. The United States Airforce (USAF) in their acceptance statement brought out four points that they cited as being behind their decision (CBS News, 2008). The Boeing’s design was designated KC-767A and was included in DOD’s 2004 model designation report. Approximately 100 KC-767 tankers were leased from Boeing for the air refueling program.
Even though the refueling program was in place in many countries in the US, many had questions about its effectiveness and cost implications especially the idea of leasing crafts which may never have any buyer once the lease period was over. This argument brought forward by senator McCain was however countered by the number of US allies who were more than willing to buy their used crafts (CBS News, 2008). The congressional budget office was next in line as they criticized the budget stressing on its fiscal irresponsibility (United States Government Accountability Office, 2008).
This led to the striking of a deal where the state would buy 80 KC-767 and lease twenty (United States Government Accountability Office, 2008). However, in December of 2003, the pentagon announced that the project had to be frozen due to a corruption allegation brought against one of its former staffer (CBS News, 2008). Furthermore, documentations that proved that the A330 based tankers were more suited to the task specifications of the airforce were more cost effective relative to Boeing tankers were found (CBS News, 2008).
The scandal led to the sentencing of the culprit who pleaded guilty to corruptions and led to the resignation of Boeing’s CEO. Donald Rumsfeld in 2006 announced the cancellation of the KC-767A leases as a measure aimed at cutting the costs and a redefinition of the USAF mission (United States Government Accountability Office, 2008). The defense secretary further stated that the move will not in any way affects the mission of the KC-767A as the upgrade of the KC-135’s fleets will help in moving towards the goals (United States Government Accountability Office, 2008).
However, the development did no affect the relationships between Boeing and its other customers. The development were however short lived and Boeing and Northrop were soon back in the ring fighting for a big defense contract. The basis of Boeing’s arguments was that the KC-30 was more versatile and had a large furl capacity than the KC-135 that were being used by the airforce. The KC-135 was developed by Boeing who were bidding for an airforce contract against their nemesis Northrop Grumman .
The latter won this round of battle as the departments of defense announced that it has won the tender to procure 179 new KC-45A tankers (Online News Hour, 2008). The Boeing company almost immediately took to the Government Accountability Office and filed a protests claiming the evaluation of its KC-30 was unfair (Online News Hour, 2008). Boeing further claimed that its refueling tanker could easily be reconverted to a passenger plane compared to Northrop’s version as shown in the Air force’s post decision briefing.
According to Boeing’s vice president they had more strengths than their competitors was all he heard from the post decision briefing. Boeing’s protests led to a review of the selection process by the accountability office which forced Northrop to freeze the project which it had already allocated $ 35 billion (Online News Hour, 2008). Northrop Grumman executives are on the other hand highlighting the irresponsibility involved in freezing a critical project to the development of the military for expensive lobbying in the congress that will inevitably lead to a change of the decisions made by the airforce (Online News Hour, 2008).
Northrop Grumman executives further claim the decision is ironic since they put their best efforts in ensuring that the airforce receives a products that they consider the best in consideration of the design (Online News Hour, 2008). They are pushing for the public knowledge of the facts of what they represents and what they are not. The congress was divided sharply on this issue and so was the general public. Boeing supporters claim that the Northrop Grumman design was a basic passenger airbus plane (Online News Hour, 2008).
A Kansas congress man was cited claiming that the decisions made by the airforce was a bad one as the airforce as it has bend backwards to deal with a French company (Online News Hour, 2008). Boeing’s die hards near its main production facility claimed that it is the only true tanker manufacturers and a mistake had been made (Online News Hour, 2008). A Washington senator supported this point of view and claimed that offering a military contract to a foreign company was suicidal and would incapacitate America’s ability to develop their own fleet if they should ever pull out of the deal (Online News Hour, 2008).
An Alabama state senators is of a different view and approached the subject from a resource allocations view point (Online News Hour, 2008). People near Northrop are bound to benefit more that those near the Boeing plants and therefore there senators have opinions that display their satisfaction or dissatisfaction with the resource allocations (Online News Hour, 2008). She further states that there have to be losers and winner either way (Online News Hour, 2008).
The Boeing group further accuse the airforce of a change in parameter in order to accommodate the design put up by Northrop Grumman so as to ensure two bidders are present (Online News Hour, 2008). Even though many are of the view that the airforce was trying to lock out Boeing due to the scandals it previously had, Boeing executives were of the view that was not the case as the specifications that were asked by the airforce were changed considerably to ensure Northrop was in the race (Online News Hour, 2008).
They further claim that the large sized tanker proposed by the Northrop was a liability and only countries not interested in their taxi ways would allow for such aircrafts. The Northrop group however counter this argument by stating that their design is more sophisticated and has advantages that are yet to be seen (Online News Hour, 2008). Issues Boeing is one of the world’s best known manufactures of aircrafts and so is Northrop Grumman who are the manufacturers of the airbus (Online News Hour, 2008).
These are two top brands who are obviously competing in other areas of business and therefore any decision that involve them is bound to raise considerable heat. It should b noted that both are American companies though Northrop Grumman is partly owned by a French company. The nature of the contract which involves the security of America as a nation is a matter of national concern as it involves the development of structures that could ensure the growth of security systems. Boeing and Grumman being business structures, such a big contract will obviously attract the interest of stakeholders from both sides.
There are a number of key issues that have been brought out by the airforce contracts which include: i. Politics Military contracts are a matter of public concern since it is in place to protect the public, the resources used in the military contracts are derived from taxpayers and therefore the failure of such projects will be a waste of taxpayers money (Meyer, 2007). When McCain questioned the cost effectiveness in leasing planes that would otherwise have no values when their lease period was over his motive as the senator of Alabama was to ensure that the taxpayers money is channeled to useful projects.
Furthermore, it is quite clear that the politicians have the ability to shoot down potentially useful deals due to what Northrop Grumman executives refer to as expensive lobbying. Politics is not always objective for there are situations where the stakes involved are shielded from the public and though the politics and viewpoints will be developed to suit the public, the real reasons are often personal (Meyer, 2007). The inclusion of politics in such cases therefore has both advantages and disadvantages and should be weighed carefully.
Military procurement just like any other public procurement scheme is prone to corruption, this was the case in the original contract that was brought to an end by Rumsfeld in 2006. Moreover, the big money involved in military procurement processes act as a natural catalysts for corruption, therefore there is need to come up with a robust self regulated systems that will ensure that such unethical practices are not in anyway included in the procurement process, the congress thus comes into the picture (Meyer, 2007).
However, the political system is not known for its objectivity. In the cases, some of the reasons brought out against Northrop Grumman are flimsy and lack in objectivity. The fact that there will be lobbying is a clear sign that there will be loss in objectivity thus the decision will tend to favor groups that are be able to garner enough political support in the congress. Furthermore, the political system is one of the most corrupt system there is and the rationale in placing such a system to guard against corruption is questionable. ii.
Security Military procurement is a security critical matter (Meyer, 2007). The military is in place to ensure that the US is protected against its external enemies (Meyer, 2007). The seriousness with which the equipment tendering process is treated and the keen eye that the media watches the unfolding of such events relay the importance placed on the military by the American people. The US is traditionally a ‘fighting nation’ and the effectiveness of its military and equipments is one of the factors that has cemented its place as a world power.
Military activities require high levels of secrecy (Meyer, 2007). There is need to come up with effective equipments that can be used in varied situations. It should be noted that the arguments brought forward by the executives from both sides are centered around the superiority of their products or the weaknesses of their opposite. The need for accuracy and well developed products that have the required reputation are some of the considerations that led to the two big companies making it to the final stage.
The two companies are multinationals that have developed their brands all over the globe. It is noteworthy that when the US defense secretary cancels Boeing’s leases other nations still seek their products and are continues seeking the products that have been labeled cost ineffective due to the reputation associated with their brand name. The importance of the security system is seen in the number of avenues and legislative systems that have been put in place to ensure that the process is done in a just manner (Krishnan, 2008).
When the airforce declares that Northrop Grumman had won the bid for the airforce tankers, Boeing seeks redress through a different avenue: Public accountability office. The office looks at their complaints and decides to freeze the process. It should be noted that it was the same office that had early in the decades frozen a billion dollar Boeing contract due to corruption charges. Even though there are systems put in place to ensure proper procedures in procurement of services and services, they can be outdone easily (Krishnan, 2008).
The corruption allegations made in the initial Boeing contracts are a clear case where the protocols were overridden and it only came to realization a couple of months after the contracts had been signed. Furthermore, the fact that is was later found out that a different design could meet the specifications made by the airforce with reduced costs clearly show that even though the guidelines are put in place they are rarely followed thus the need for a system or authority that will follow up on the recommendations and processes to ensure that they conform to the laid out guidelines.
Some politicians have argued that the French affiliation of the airbus manufacturer is in itself a security risk and therefore a purely American company should be contracted. However, such a contracting systems will obviously lock out other capable companies and therefore bring about questions on the integrity of the bidding process. America has prided itself as being a liberalized nation, putting up measures that will lock out other qualified members on the basis of the compositions of its investors is contrary to the spirit of liberalization.
Furthermore, being involved with a company that has partnered with a success story in Europe shields the tanker project from American economic downtimes though it effectively ensures that the project is affected by the happening in Europe. It is unrealistic to lobby for Boeing on the basis of confidentiality; a company that has already shown traces of corruption cannot be trusted and neither can a company that is yet to prove its worth in the military sector.
Therefore, system should be put in place to ensure that the projects are monitored and compared to some given standards if either is to be awarded the contract. iii. Stability The US is the father of capitalism and is therefore a country that is characterized by intense competition between industry players who will always be on the look for additional finances that will ensure their development into the future (Verkuil, 2007). On the day it was reported that Northrop Grumman had won the military contracts its share prices rose by over 20 cents and Boeing’s shares fell by a couple of cents (CBS News, 2008).
Note, the development in the contract procurement were being watched by investors who will then make their decisions on which company to invest in. Even though the large money involved in the transactions may be enough to lure investors into channeling their resources to a particular company, the reputation involved in being a company contracted with one of the world’s best airforce to develop its aircraft tankers is enough to cause significant changes in the company’s share index. Being a capitalistic economy where entities gain at the expense of others, Boeing is bound to feel the pinch.
The situation is made worse by the consideration that Boeing has a well developed reputation and therefore failure to win a contract from a partner that it has associated with for a long time may be taken by the investors and its consumers in the wrong light. It may imply that the partner does not trust its capacity to develop superiors products or has doubts on its potential to remain productive. To bring the idea of reputation into perspective, many are of the notion that the corruptions charges brought against Boeing may have affected its chances of successfully bidding for the contract (Verkuil, 2007).
This holds considerable weight in that the military is not all about facilities but also reputation. The American people and its enemies will always keep a keen eye on the military and any transactions conducted with a partner who is proved to be corrupt will dent on its integrity thus its reputation. Conclusion Awarding a contract to a company to deliver services that are of public interest is a complex process and will always involve the media and many other systems that have been put in place to ensure the safety of the public.
Individual good and interest will always be central in the arguments brought forward by most people, this is more pronounced if the contract will significantly affect many people. It is therefore upon the government and the social systems to ensure that the systems put in place to ensure effectiveness of the bidding process are functioning properly and are robust enough to deal with the dynamism associated with such processes. If need be, changes must be instituted to ensure that the system are functioning.
The products delivered must measure up to some predetermined standards to ensure quality and accountability. These measures and other quality management measures if well integrated into the bidding and implementation of contracts that are of public interest will ensure that the public benefits in the best possible way. Word Count: 3271 Reference List CBS News (2008). Boeing Spurned On Huge Air Force Contract. Retrieved 13 October 2008 from <http://www.
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