CEOs Must Certify Their Tanker Bids
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Posted
by Amy Butler at
10/26/2009 12:52 PM CDT
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The forthcoming proposals from Boeing and Northrop Grumman/EADS for the KC-X aerial refueling tanker must come with a personal guarantee.
"They are making the CEO sign a certification letter that says he guarantees the performance," says on industry source. The CEO must back the performance, schedule and cost claims made in the bid, according to this official.
This brings a host of questions to mind.
*First, shouldn't the bid itself -- on Boeing or Northrop Grumman letterhead -- implicitly be personally guaranteed by the CEO as well as all officers of the company that submits it? So, why does USAF need this extra certification?
*Second, why then would this rile industry? A CEO should personally back his proposals -- all of them. The only reason I see to distance yourself as a CEO from your company's bid is if the bid is bogus, in which case you are doing harm to your customer and, potentially, your shareholders by proposing it and, possibly, winning on a false strategy (a la FIA).
*Third, is there some extra layer of legal liability this puts personally on the CEO, rather than his or her standard responsibilities? And, so, if not, why does DOD go to the trouble? Is this basically saying that procurement has gone so awry that the proposals aren't worth the paper they are written on?
Behind the scenes, I wonder if USAF isn't worried about the two companies taking the cost focus so seriously in this most recent draft RFP, that the strategy then becomes who will take the worst bath on development in order to get the foothold and win the contract. That is great for DOD if it gets a low price offer -- especially one at a discount.
But, losses on a program like KC-X -- estimated to be worth $35 billion for 179 tankers -- wouldn't get a fanbase in shareholders or a corporate board. So, a company that won on that premise would always be waiting for the opportunity to pay itself back.
And, that would come the very first time the Congress cuts the funding for the program or the moment the program manager requests a change to a requirements or task. Once you open up the contract, that fixed price development and procurement strategy goes down the toilet, and a contractor will start counting the money.
So, I wonder if this certification business is all an effort to put CEOs in the hot seat, hoping they won't want to make much profit.
Let us know what you think ...
Is there even a precedent for this level of "CEO certification" of a bid package?
- get the requirement reduced to 900
- propose their gen6 boom (does it do 1200? is it even remotely close to being ready?)
- something else?
If I had to guess, this CEO certification is send a message that there a lot of resistance to low-ball bids and business-as-usual cost overruns. The USAF needed new tankers a decade ago, and there's no time for a fourth acquisition round.
Lets get the 787 project managers to work on the Boeing Tanker Bid. That should be worth some pretty amusing results. Or maybe the 747-8 guys. How about the Wedgetail?
Just some philosophical thinking perhaps:
DoD SecDef should then also certify that they are estimating realistic, total-program, unit procurement numbers being expected; given the estimated total program cost and schedule being expected?
It just sounds like a DoD business as usual: i.e., under-estimated, highly-expected proposed Programs requesting 'Bids'?
Hence, is this kind of mega procurement then, set up for failure and overruns by the procedures set forth themselves?
Perhaps it just seems that such a massive deal of this magnitude therefore, by definition - consisting of 179 tankers in one contract - would be akin to the pressure felt if requiring guaranteed bids for flying manned crews to Mars?
And so it's not lost in confusion: what exactly does this 'worth $35 billion' estimated cost consist of? Is this in CY 2008 dollars? Is it simply the estimated Recurring Flyaway Cost? The Total Flyaway cost? The estimated Procurement Cost (including initial spares)??
Programs on this scale just seem to get way over-simplified vis-a-vis expectations going into it, when in fact, as a rule, as hell will inevitably break loose.. IMO.