When Boeing won the long-fought contest to develop the KC-46 tanker for the U.S. Air Force, the service was determined to shift as much of the risk to the supplier as possible: The pair settled on a fixed-price contract worth up to $4.9 billion. The government's strategy was based on experience in which industry too often failed to deliver what it promised on time and on budget.

Twenty-one months into the program, Boeing plans to deliver the first 18 combat-ready KC-46s to replace KC-135s in mid-2017. In the meantime, the government estimates that Boeing will spend $400 million of its own money to design the tanker. While it is too early to tell whether Boeing's business decision will pay off, it appears that the structure of the contract is inducing the kind of behavior the Air Force hoped for.

Boeing's strategy is to eliminate as much of the development risk as early as possible. Buttressing this approach is substantial upfront investment from the government and, possibly, from the contractor, if the auditors are right and Boeing overruns the contract ceiling.

Early in the program, the company began using management reserve (MR) funds (monies set aside for unplanned activities) at a high rate, as noted this fall by program director Maj. Gen. J.T. Thompson. MR funds are provided in a program to be used at the manager's discretion. But several major programs, including the F-35 and Lockheed Martin's Space-Based Infrared System missile warning satellite, burned through MR funds repeatedly, forcing the Air Force to ask Congress again and again for billions of unexpected dollars.

Boeing, however, is not tapping MR to solve design problems—as was the case in those programs. Rather, the company is hoping to prevent problems by investing in systems integration laboratories (SIL) early in development, according to Maureen Dougherty, Boeing's KC-46 vice president.

The MR burn rate was 8% of the cost of budgeted work remaining on the program, according to Laura McGowan, Air Force spokeswoman. It has since decreased to 3%. This tracks with Boeing's plans, according to Dougherty: “I have invested MR upfront to accelerate risk-reduction and make sure we are driving every issue we can possibly think of out early.” Discovering design issues as early as possible will provide “headroom for something we might learn along the way” that could retire rework, she says.

Already two of five SILs are up and running. The first, known as SIL 0, will be used to test the software designed for the 767-2C, the commercial aircraft configuration on which the KC-46 is based. This SIL began operations Sept. 12.

The -2C differs from the baseline 767-200ER with the addition of Boeing 787 cockpit displays, cargo door and floor, auxiliary fuel tanks and plumbing and wiring that will support the mission systems of the aircraft. It will roll off Boeing's Everett, Wash., 767 line and be shuttled to a finishing center here for installation of the military-specific hardware (including the boom and defensive systems).