Northrop Grumman Drops out of Tanker CompetitionMarch 11, 2010
 The Northrop Grumman Corporation announced last week that it was dropping out of the competition for a $40 billion contract to build a fleet of aerial refueling tankers for the U.S. Air Force. That leaves Boeing, its rival for the past decade in a competition mired in lawsuits and revised requirements, as the only bidder for one of the biggest Pentagon contracts. Northrop said it dropped out because the new Air Force requirements "dramatically favor Boeing's smaller refueling tanker," although the previous requirements led the Air Force to select Northrop for "offering the most capable tanker for the warfighter at the best value for the taxpayer." Analysts worry that such a lopsided victory could allow Boeing to charge higher prices for the tankers. Morris A. Cohen, a professor of operations and information management at Wharton, agrees that the outcome could indeed mean higher prices for the Defense Department (DoD). But he also notes that military procurement occurs in an unusual marketplace. "It's a strange economy where the customer designs the products by specifying what is needed and there's only one customer," he says. "But it's messier in practice even if there are several bidders." Once a winner is selected from competitive bidding, some of the same issues that arise with a single player emerge. The DoD already has experience dealing with single source projects — most of them problematic. "These projects almost always have overruns," says Cohen. "Look at what is happening with the Joint Strike Fighter. It is delayed and the cost is going up." The problems surfaced despite several parties bidding for the contract. "Someone won the competition on a very preliminary design and when they began to produce the jet five to 10 years later, the design had changed completely," says Cohen. "It ended up not being so competitive after all." (The Northrop Grumman Corporation) (RELEASED) |
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